TAX 2 REVIEWER Income Tax Income derived in

the Philippines only

Income derived in
the Philippines only

3) SITUS RULES
TRANSFER TAXES
Real and Personal Intangible Personal
Decedent (Tangible) Properties Properties
Preliminaries: Within Without Within Without

Estate and Donor’s Taxes are Transfer Taxes which RC    

refer to the burden used upon the right to gratuitously NRC    
transfer or transmit property, tangible or intangible, RA    
from one person to another. NRA
WITHOUT
Reciprocity
 X X
Estate Tax Donor’s Tax Clause
Subject Right to Transfer Right to Transfer
Taxpayer Estate Donor
NRA
Liability to Pay Administrator, Executor Donor
WITH
Reciprocity
 X X X
or Legal Heir Clause
Effectivity Upon Death Lifetime of the Real Properties – Sec. 415, NCC
Donor
Tax Base Net Estate Net Gift Personal Properties
Ceiling P200,000 P100,000 Tangible – Sec 416, NCC
(Exemption) Intangible – Sec 104, NIRC
Filing Within six (6) months Within 30 days
from date of death from date of
donation General Rule: Situs of Taxation of Intangible Personal
Top Rates 20% - Pre-TRAIN 15% - Relative Property is at the domicile or residence of the owner.
6% flat rate - TRAIN 30% - Stranger

EXPN: When the law provides otherwise. Example:

ESTATE TAX
1) BASIC PRINCIPLES AND THEORIES
Estate Tax is a tax imposed on the privilege of
a person to transfer or transmit his property
gratuitously to the person called to his succession.
B urden - direct (impact on one person and cannot
be passed on to another)
A mount - ad valorem (imposed on value)
R ate - progressive (tax increases as base
increases)
O bject - excise (tax on the exercise of a privilege)
P urpose - general (revenue purposes)
S cope - national (NIRC)
Theories and Principles:
a) Redistribution of Wealth Theory –
Estate tax reduces the concentration of
wealth because the larger the estate, the
bigger the tax that needs to be paid.
b) Life-blood Doctrine – The government
can neither exist nor endure without
taxation. Government projects and
infrastructures, the government’s ability to
serve and protect the people are made
possible through the availability of funds
provided through taxation.
c) Benefit Received Theory – The peaceful
possession and enjoyment of a right to
transmit property either by will or
operation of law is sanctioned by the State.
Hence, in return, the government needs
revenue to defray its expenses.
d) State Partnership Theory – Estate tax is
a method of collecting the share which is
properly due to the State as a “partner” in
the accumulation of property which was
made possible on account of the protection
given by the State.
2) TWO TYPES OF TAXPAYERS IN ESTATE TAXES
GROUP 1 GROUP 2
Covered RC, NRC, RA NRA
Gross Estate Properties in/out of Properties
the Philippines Philippines
Sec. 104, NIRC:
The following are considered Intangible Personal
properties situated in the Philippines: (Sec 104,
NIRC):
 Franchises which must be exercised in the
Philippines;
 Shares, obligations, or bonds issued by any
corporation or Sociedad anonima organized
or constituted in the Philippines in
accordance with its laws;
 Shares, obligations or bonds by any foreign
corporation 85% of the business of which
is located in the Philippines;
 Shares, obligations or bonds issued by any
foreign corporation if such shares,
obligations or bonds have acquired a
business situs in the Philippines; and
 Shares or rights in any partnership,
business or industry established in the
Philippines.
4) RECIPROCITY CLAUSE
This applies when no estate is collected with
respect to the Intangible Property by the country of a
NRAD to Filipino Citizens in that country, thru the:
a) Absence of Transfer Tax Clause
b) Presence of Exemption Clause
5) DETERMINATION OF GROSS ESTATE AND NET
ESTATE:
Gross Estate is determined by including all the value
at the time of his death of all property, real or
personal, tangible or intangible, wherever situated.
Provided that, in case of NRAD, only that located in
Philippines at the time of his death is included.
Net Estate is Gross Estate LESS deductions.
Formula:
Gross Estate
LESS Deductions
Net Taxable Estate
MULTIPLY Tax Rate
Estate Tax Due
in the
6) COMPOSITIONS OF GROSS ESTATE
 Administrator Irrevocable
2. Other than No. 1 Revocable Included
a) Decedent’s Interest:
3. Other than No. 1 Irrevocable Excluded

It is the extent of interest of the decedent at the time Hence, life insurance taken out by the decedent will be
of his death including those that were already earned EXCLUDED in his gross estate only if the beneficiary is
but were not yet received by the decedent at the time NOT the estate, executor or administrator AND the
of his death. designation is IRREVOCABLE.

b) Transfer in Contemplation of Death: f) Prior Interest

The transfer in this case is made in the thought of
death. The consideration or go signal for the transfer is
death. No death, no transfer. Includes:
1) By trust or otherwise, in contemplation of or
intended to take effect in possession or
enjoyment at or after death.
2) By trust or otherwise, under which he has
retained 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 person who shall possess
or enjoy the property or the income
therefrom.
Further, donation which is intended to take effect after
the donor’s death, is included here.
g) Transfers for Insufficient Consideration
In case the transfers of property either in
contemplation of death, revocable transfer or property
passing under the general power of appointment is
made for not for a bona fide sale (insufficient
consideration), the value to be included shall only be
the excess between the FMV of the property at the
time of death over the consideration received by the
decedent.
Rule: (In case there is no bona fide sale)
1. Compare the FMV, at time of transfer and FMV
at time of death.
2. If FMV, at time of death is LESSER, get the
difference between FMV at time of death and
the consideration received.
3. The difference is the amount to be included in
the gross estate.

EXPN: In case of a bona fide sale for an adequate and Q: what if amount at time of death is GREATER
full consideration in money or money's worth. than at time of transfer; do we have to get the
difference between FMV at time of transfer and
c) Revocable Transfer: consideration received?

These are transfers made by decedent during his h) Other items:

lifetime but the use, enjoyment, and possession
thereof is subject to his power to alter, amend, revoke These items are actually deductions but for
or terminate at the time of his death. them to be claimed as deductions, their value must
first be included in the gross estate.
Example:
Alpha donated to Bravo a parcel of land worth P5M but
retained to himself the power to alter, amend, revoke or terminate the 1. Claims Against Insolvent Persons
donation at the time of his (Alpha’s) death. 2. Unpaid Mortgage
Here, the property is deemed to be Alpha’s such that if
Bravo died before Alpha, such property will not be part of Bravo’s
3. Property Previously Tax
estate. Likewise, if Alpha died first, such property is part of Alpha’s 4. Family Home
estate. 5. Amounts received under RA 4917

d) Property Passing Under General Power of 7) EXCLUSIONS FROM GROSS ESTATE

Appointment:
a) Capital of the Surviving Spouse
Power of Appointment is a power conferred on a
donee (decedent) by will or succession to select and The “capital of the surviving spouse of a
nominate one or more recipients of the donor’s estate decedent” refers to the exclusive property of
or income. Such property transferred is the one the surviving spouse and shall not, for estate
subject to tax at the time of donee(decedent)’s death. tax purposes, be deemed as part of his or her
It may either be general or special. gross estate, viz.:

 General – when it gives to the donee the i. That which is brought to the marriage
power to appoint any person he pleases, as his or her own;
including himself thus having a full dominion ii. That which each acquires during the
over the property as though he owned it. marriage by lucrative title;
 Special – when the donee can appoint only iii. That which is acquired by right of
among a restricted or designated persons redemption or by exchange with other
other than himself. property belonging to only one of the
spouses;
Note: it is that property subject to General Power of iv. That which is purchase with exclusive
Appointment that is taxable by Estate Tax. money of the surviving spouse;
v. The sums collected by installments
e) Proceeds of Life Insurance: during the marriage from credit
payable in a certain number of years
Beneficiary of Designation Gross Estate
Policy are considered property of the spouses
1. Estate, Executor, Revocable or Included to whom the credit belongs;
 vi. The right to an annuity, whether  Wake expenses
perpetual or for life but pensions due  Publication charges for death notice
during marriage belong to the  Telecommunication expenses in
partnership; informing relatives of said death
vii. The right of usufruct, belonging to one  Cost of burial plot
of the spouses, form part of his or her  Interment or Cremation fees
separate property, but the fruits and  Fees of Rites and Ceremonies
interest due during the marriage incidental to internment
belong to the partnership.
Not deductible funeral expenses:
Rule: In computing the estate tax of a married  Expenses incurred AFTER internment.
decedent, include the conjugal/communal  Any portion of funeral or burial
property of the spouses and the exclusive expenses borne or defrayed by
property of the decedent. EXCLUDE the relatives and friends of the deceased.
exclusive property of the surviving spouse,  Expenses in excess of P200,000.
abovementioned.  Medical expenses of the last illness.
This will form part on Medical Expenses
Conjugal/Communal deduction under Special Deductions.
Properties of Spouses xxx
ADD Exclusive Properties Note: The expenses must be duly
Of Decedent xxx supported by receipts or invoices or
Gross Estate xxx other evidences to show that they were
really incurred. (RR-2-2003)
Note: In so far as conjugal property is
concerned, the aliquot share of the surviving b. Judicial Deductions
spouse is allowed as a deduction to arrive at a These are expenses incurred in the:
taxable net estate.  inventory-taking of assets
comprising the gross estate;
b) Amounts received as compensation for  its administration
personal injuries and damages which lead  payment of debts of estate
to the death of a decedent.  distribution of the estate among
the heirs.
These amounts are not included in the gross
estate of the decedent as they are not Hence, it includes:
properties of the decedent existing at the time  Fees of executor or administrator
of his death.  Attorney’s Fees
 Court Fees
8) DEDUCTIONS FROM GROSS ESTATE  Accountant’s Fees
 Appraiser’s Fees
A. ORDINARY RCD, RAD, NRAD  Clerk hire
DEDUCTIONS NRCD
1. ELIT Yes Yes (Pro
 Costs of preserving and distributing
rated) the estate
2. PPT or Vanishing Deductions Yes Yes  Costs of storing or maintaining
3. Transfers for public use Yes Yes
property of the estate
B. SPECIAL RCD, RAD, NRAD
DEDUCTIONS NRCD  Brokerage Fees for selling property
4. The Family Home Yes No of the estate.
5. Standard Deductions Yes No
 Commissions for selling or
6. Medical Expenses Yes No
7. Benefits under RA 4917 Yes No disposing of the estate
C. OTHER DEDUCTIONS RCD, RAD NRAD
NRCD Note: Any unpaid amount for the
8. Share of the Surviving Spouse Yes Yes
aforementioned cost and expenses claimed
under “Judicial Expenses” should be supported
NOTA BENE:
by a sworn statement of account issued
In case of NRAD, NO DEDUCTIONS shall be
and signed by the creditor. (RR-2-2003)
allowed, unless his executors, administrator or anyone
of his heirs, INCLUDES in the return required to be
Judicial Expense of the testamentary or
filed, the value at the time of his death that part of the
intestate proceeding, to be deductible, must be
gross estate of the NRAD that is NOT SITUATED in
those administration expenses essential to
the Philippines.
the proper settlement of the estate; not for
the benefit of the heirs, devisees or legatees.
A. Ordinary Deductions
Hence, it does NOT include the
compensation paid to a trustee of the
1. Expenses, Loses, Indebtedness, Taxes,
decedent’s estate when it appeared that such
etc. (ELIT)
trustee was appointed for the purpose of
managing the decedent’s real estate for the
a. Funeral Expenses
benefit of testamentary heir. (Lorenzo vs
Actual funeral expenses or in an amount
Posadas)
equal to five percent (5%) of the gross
estate, whichever is lower, but in no case
Extrajudicial expenses essential for the
exceed P200,000.
proper settlement of estate is included in
deductions. But litigation expenses incurred by
the heirs incurred by the heirs in asserting
Includes:
their rights cannot be claimed as a deduction.
 Mourning apparel
(CIR vs CA & Pajonar)

c. Claims Against the Estate
For these claims to be deductible, the following
must concur:
1. At the time indebtedness was incurred the
debt instrument was notarized;
2. If the loan was contracted within 3 years
before the death of the decedent, the
administrator or executor shall submit a
statement showing dispositions of the proceeds
of the loan.
Claims against estate may arise from:
 Contract
 Tort
 Operation of Law
Requisites for Deductibility of Claims against
estate:
 Liability represents a personal
obligation of the decedent at the time
of his death, except: medical and
funeral expenses which were
deductible under separate categories.
 Liability was contracted in good faith
and for full consideration in money.
 The claims must be a debt or claim
that is valid in law and enforceable
in courts.
 The indebtedness must not have
been cordoned by the creditor or
the action to collect from the decedent
must not have prescribed.
Note: Applying date-of-death valuation
principle, the claims existing at the
time of death should be claimed as
deductions and that post death
compromise or development are
not material in determining the
amount of deductions. (Dizon vs
CTA)
Substantiation Requirements:
1. In case of Simple Loan:
 Notarized Debt Instrument
 Notarized Certification from
Creditor as to the unpaid balance
of death, including interest at the
time of death.
 Proof of Financial Capacity of
Creditor to lend the amount of
money.
 Undertaking reflecting dispositions
of the proceeds of the loan.
2. In case it arose from purchase of goods or
services
 Documents or Contracts
 Notarized Certification from
Creditor as to the unpaid balance
 Certified True Copy of the latest
audited balance sheet of the
creditor
3. If settlement was made through the Court in
a testate or intestate proceeding:
 Documents filed with Court
evidencing credit
 Court Order approving said claims
 Documents mentioned above.
d. Claims against Insolvent Persons:
For this to be deductible:
 the value of decedent’s interest therein
must be included in the gross estate so
as not to understate the taxable net
state.
 It must be shown that the debtors are
not incapable of paying their
indebtedness.
e. Unpaid mortgages, taxes and casualty
losses
i. Unpaid Mortgage – For it to be
deductible, the mortgaged property, to
the extent of the decedent’s interest
therein, should be included in the gross
estate.
ii. Losses – Requisites:
 Losses were incurred during the
settlement of estate;
 Losses arose from fires, storms,
shipwreck, or other casualties, or
from robbery theft or
embezzlement.
 They are not compensated for by
insurance or otherwise.
 They are not claimed as deduction
from gross income for Income Tax
purposes.
 Such losses were incurred NOT
LATER THAN the last day for the
payment of estate tax (i.e. within 6
months from date of death)
iii. Taxes – Requisites:
 Taxes accrued as of the time of
death of decedent
 Taxes were UNPAID as of the time
of death.
 It does NOT include:
o Income Tax upon income
received after death.
o Property Tax not accrued
before his death.
o Estate Tax due from
transmission of his estate.
Note: For RCD, RAD and NRCD, the ELIT is deductible
in full. But for NRAD, ELIT must be the proportion of
such deductions which value of such part bears to the
value of his entire gross estate wherever situated.
Hence, it must be pro-rated using the following
formula:
Philippine GE
----------------- X ELIT
Entire GE
2. Property Previously Taxed (PPT) or
Vanishing Deductions (see discussion on the
next number)
3. Transfers for Public Use or TPP
The amount of all transfers for the use of the
Government or any of its political subdivision,
exclusively for public purposes.
The value of the property given is must be
included in the gross estate for it to be deductible.
TPP is an exclusive deduction UNLESS the
spouse made a written consent or is a party to the
 transfer where it will be considered as a conjugal Net Conjugal Estate xxx
deduction. LESS Share of Surviving Spouse
In the Net Conjugal Estate
B. Special Deductions: (1/2) xxx
Decedent’s Interest in the
4. The Family Home – Requisites: Net Conjugal Properties xxx
 The family home must be the actual
residential home of the decedent and his 9. VANISHING DEDUCTIONS or PROPERTY
family at the time of his death as certified PREVIOUSLY TAXED (PPT)
by the barangay captain of the locality
where the family home is situated; The concept of Vanishing deduction is simply to
 The total value of the family home must be minimize the effect of taxing twice the same
included as part of the gross estate of the property within a period of 5 years. Hence,
decedent; and avoiding or minimizing double taxation.
 Allowable deduction must be in an amount
equivalent to the current FMV of the family Requisites:
home as declared or included in the Gross  The property situated in the Philippines must
estate or the extent of the decedent’s be included in the Gross Estate of the present
interest (whether conjugal, community or decedent.
exclusive) whichever is lower, but not  The present decedent must have died within 5
exceeding P1,000,000. years prior to the death of the prior decedent
Note: any amount in excess of OR the donation of the said property to the
P1,000,000 is already subject to Estate present decedent.
Tax.  The estate or donor’s tax must have been paid
to the subject property.
 Such property can be identified as having been
5. Standard Deduction received by the present decedent from the
A deduction in the amount of P1,000,000 shall donor or from previous decedent; or that
be allowed as an additional deduction without need acquired in exchange of property so received.
of substantiation.
NRAD cannot avail of this deduction. Percentage of Vanishing Deduction. If the period of
interval is:
6. Medical Expenses – Requisites:
 All medical expenses (whether paid or More than But not more Percentage
than
unpaid) must be incurred within 1 year
0 1 year 100%
before death of the decedent.
1 year 2 years 80%
 It is duly substantiated with official
2 years 3 years 60%
receipts, invoices, statement of accounts
3 years 4 years 40%
duly certified by the hospital and other
4 years 5 years 20%
documents in support thereof.
5 years 0
 The total amount thereof does NOT
EXCEED P500,000. Any amount in excess Formula:
is no longer deductible.
Lower FMV of property xxx
7. Benefits received by heirs of decedent LESS Mortgage (if any) xxx
under RA 4917 – Requisites: Initial Basis xxx
 The decedent-employee has been Initial Basis
employed for at least 10 years; LESS ------------- X ELIT + TPP xxx
Gross Estate
 Not less than 50 years old at the time of
his retirement. Final Basis xxx
 Must have availed of the benefits only Percentage %
once. Vanishing Deduction xxx
 The benefits granted must be in
accordance with a reasonable private 10. EXEMPTIONS OF CERTAIN ACQUISITIONS
benefit plan maintained by the employer AND TRANSACTIONS
duly approved by the BIR.
The following shall not be taxed:
Note: The amount received by the heirs as
a consequence of death of decedent- A. The merger of usufruct in the owner of the
employee must be included in the gross naked title;
estate for it to be deductible. B. The transmission or delivery of the inheritance
or legacy by the fiduciary heir or legatee to the
8. Share of Surviving Spouse fideicommissary;
After deducting the allowable deductions C. The transmission from the first heir, legatee,
appertaining to the conjugal or community or donee in favor of another beneficiary, in
properties included in the gross estate, the share accordance with the desire of the predecessor;
of the surviving spouse (1/2) must be removed to and
ensure that only the decedent’s interest in the D. All bequests, devises, legacies or transfers to
estate is taxed. social welfare, cultural, charitable institutions,
no part of the net income of which insures to
Formula: the benefit of any individual: Provided,
however, that not more than 30% of the said
Conjugal Properties xxx bequests, devises, legacies or transfers shall
LESS Conjugal Deductions xxx
 be used by such institutions for administration
purposes. (Sec 87[A] to [D], NIRC)
E. Bequests to be used actually, directly and
exclusively for educational purposes under Art.
XIV, Sec. 4(4) of the 1987 Constitution.
F. Exemptions under Reciprocity Clause
G. Exemptions under Special Laws, such as:
a. Capital of the surviving spouse under
Sec. 85(H) of NIRC.
b. If the net estate is P200,000 or below
under Sec. 84 NIRC
c. Benefits received from SSS and GSIS,
under PD 1161 and PD 1146,
respectively, as amended.
d. Benefits received from US Veterans
Administration under RA 360 or War
Benefits under RA 227.
H. Death of Individual not subject to Estate Tax.
Requisites:
a. In case of decedent registered with the
BIR who has no properties subject to
estate taxes, the heirs shall request for
cancellation of the decedent’s TIN in a
proper form.
b. The documentary requirements shall
be submitted to the BIR district office
where the TIN of the decedent is
registered.
c. In addition to the above, an affidavit
shall be submitted by the heirs stating
that the decedent has no properties
subject to estate taxes.
d. The BIR district office shall notify the
heirs, administrators or executor
applying for cancellation of decedent’s
TIN of the status of the request within
10 days from complete submission of
the requirements. (RR-7-2012)
11. DATE-OF-DEATH VALUATION PRINCIPLE
The properties comprising the gross estate
shall be valued based on their FMV as of the time of
death.
In case of real property, the FMV shall either
be that determined by the Commissioner or that fixed
by the provincial and city assessors, whichever is
higher.
Any post-death developments like compromise or
condonation, etc., is immaterial in determining the net
value of the estate. (Dizon vs CTA citing Ithaca Trust
Co. case)
Note: In case of Shares of Stocks ….
In case of Right to Usufruct, use or habitation,
as well as that of annuity …
12. FILING OF NOTICE OF DEATH OR ESTATE TAX
RETURN
A. Filing of Notice of Death
Mandated in the following cases:
1. In all cases of transfers subject to tax,
or
2. When, though exempt from tax, the gross
value of estate exceeds P20,000.
Time of Filing:
The executor, administrator or any of the legal
heirs, as the case may be shall file a written notice of
death:
1. Within two (2) months after the decedent’s
death, or
2. Within a like period after qualifying as such
executor or administrator.
(REPEALED BY TRAIN LAW!)
B. Filing of Estate Tax Returns
Mandated in the following cases:
1. In all cases of transfers subject to the tax
imposed herein, or
2. Where, though exempt from tax, the gross
value of the estate exceeds P200,000, or
3. Regardless of the gross value of the estate,
where the said estate consists of registrable property
such as real property, motor vehicle, shares of stock or
other similar property for which a clearance from the
BIR is required as a condition precedent for the
transfer of ownership thereof in the name of the
transferee.
The executor, administrator or any legal heir
shall file a return under oath in duplicate setting forth:
1. The value of the gross estate at the time of
decedents death, or in case of a NRAD, that part of his
gross estate situated in the Philippines.
2. The deductions allowed from gross estate.
3. Such part of such information as may at the
time be ascertainable and such supplemental data as
may be necessary to establish correct taxes.
Provided, however, that estate returns showing
a gross value exceeding P2,000,000 shall be supported
with a statement duly certified by the CPA containing
the following:
1. Itemized assets of decedent with its
corresponding gross value
2. Itemized deductions
3. Amount of tax due paid or not paid or
outstanding.
Time of Filing:
It shall be filed within 6 months from the
decedent’s death.
A certified copy of the schedule of partition and
the order of the court approving the same shall be
furnished the Commissioner within 30 days after the
promulgation of such order.
Extension of Time
Commissioner may grant a reasonable
extension not exceeding 30 days, in meritorious
cases.
Place of Filing:
1. An authorized agent bank, or
2. Revenue District Officer, Collection Officer,
or
3. Duly authorized treasurer of the city or
municipality in which the decedent was domiciled at
the time of his death or if there be no legal
residence in the Philippines, with the Office of the
Commissioner.
13. PAYMENT OF ESTATE TAX
Time of Payment
At the same time the Return was filed by the
administrator, executor or heir or simply under the
“pay as you file system.”
Extension of Time
CIR has the Power to Extend. Requisites:
1) Payment of due date will impose undue hardship
upon the estate or any of the heirs,
2) May extend time but not to exceed:
1. Judicial Settlement – 5 years
2. Extrajudicial Settlement – 2 years
3) If extension is granted Bonds or Securities may be
required by the Commissioner not exceeding double
the amount of the tax.
Note:
1) Amount must be paid on or before the date of
expiration. Statute of Limitations for assessment as
provided under Sec. 230 shall be suspended for the
period of such extension.
2) No extension shall be granted if taxes are
assessed by reason of the taxpayer’s:
1. Fraud
2. Intentional Disregard of Rules and
Regulations, or
3. Negligence
14. TAX CREDIT FOR ESTATE TAXES PAID IN A
FOREIGN COUNTRY (Sec. 86(D))
For RCD, RAD, NRCD (Group 1), the estate
taxes imposed or paid in a foreign country can be
claimed as a tax credit against the estate tax due in
the Philippines. This is to minimize the effects of
indirect double taxation.
Limitations:
The amount of credit taken shall be subject to
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
the country taxable under this title bears to his entire
net estate.
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 the Title
bears to his entire estate.
Formula:
Limit A:
Net Estate (per foreign country) Philippine
----------------------------------- X Estate = Limit
Entire Gross Estate Tax
Limit B:
Net Estate (all foreign countries) Philippine
----------------------------------- X Estate = Limit
Entire Gross Estate Tax
Note: thorough discussion on this topic can be seen
under Donor’s Tax
15. OBLIGATIONS OF THE EXECUTOR,
ADMINISTRATOR, HEIRS, OFFICERS, AND OTHER
PERSONS CONCERNED.
A. Executor, Administrator or any Legal Heir.
Executor or Administrator shall have the Primary
obligation to pay the estate tax before the delivery of
the distributive share in the inneritance to any heir or
beneficiary.
The Heir or Beneficiary has subsidiary liability for the
payment of that portion of the estate which his
distributive share bears to the value of the total net
share.
B. Register of Deeds
He shall not register in the Registry of Property unless
a Certification from the Commissioner that the eatate
tax had been paid.
C. Lawyer, Notary Public, or any government
officer
They have the duty of furnishing to the commissioner
and others with copies of such documents and any
information whatsoever which may facilitate the
collection of the aforementioned tax.
D. Debtor
He shall not pay his debts to the heirs unless
Certification from the Commissioner that the tax fixed
has been shown. But he may pay the executor or
administrator without said certification if the credit is
included in the inventory of the estate of the deceased.
CASES
1. FERDINAND R. MARCOS II
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN
G.R. No. 120880 June 5, 1997
Facts:
Ferdinand R. Marcos II assailed the decision of the
Court of Appeals declaring the deficiency income tax
assessments and estate tax assessments upon the
estate and properties of his late father despite the
pendency of the probate proceedings of the will of the
late President. On the other hand, the BIR argued that
the State’s authority to collect internal revenue taxes
is paramount.
Petitioner further argues that "the numerous pending
court cases questioning the late president's ownership
or interests in several properties (both real and
personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature
and oppressive." He points out the pendency of
Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the
ownership and interests of the late President in real
and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege
whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate
were among those involved in the said cases pending
in the Sandiganbayan. Indeed, the court is at a loss as
to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending
cases involving ill-gotten wealth does not affect the
enforcement of tax assessments over the properties
indubitably included in his estate.
Issue: W/N the BIR needs the approval of the probate
court for the collection of the estate taxes?
Held: No. The approval of the court, sitting in probate
or as a settlement tribunal over the deceased’s estate,
is not a mandatory requirement in the collection of
estate taxes.
There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate
or estate settlement court's approval of the state's
claim for estate taxes, before the same can be
enforced and collected.
The enforcement of tax laws and the collection of taxes
are of paramount importance for the sustenance of
government. Taxes are the lifeblood of government
and should be collected without unnecessary
hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate
the existence of government itself.
It is not the Department of Justice which is the
government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of
Internal Revenue whose determinations and
assessments are presumed correct and made in good
faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities
in the performance of official duties, an assessment
will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment
is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said
assessment. In this instance, petitioner has not
pointed out one single provision in the Memorandum of
the Special Audit Team which gave rise to the
questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable
and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
2. COMMISSIONER OF INTERNAL REVENUE
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and
JOSEFINA P. PAJONAR, as Administratrix of the
Estate of Pedro P. Pajonar
G.R. No. 123206 March 22, 2000
Facts:
By reason of the Bataan Death March during World
War II, Pedro Pajonar became insane. Private
respondent Josefina Pajonar was the guardian of the
person of decedent Pedro Pajonar. The property of the
decedent was put by the RTC- Dumaguete, under the
guardianship of the Philippine National Bank via special
proceeding, wherein 50, 000 was spent therein for
payment of attorney's fees.
When the decedent died, instead of filing a estate tax
return, PNB advised Josefina to extra-judicially settle
the estate of his brother. The decedent's estate was
extra-judicially settled and the heirs paid an amount of
60, 753 for the notarization of the deed of extra-
judicial settlement of estate.
The private paid the estate tax, however, they were
subsequently assessed of deficiency taxes because the
amount paid in the special proceeding [50, 000] and
the notarization fee [60, 753] cannot be claimed as a
deduction to the decedent's estate. Private respondent
paid the said taxes under protest. While the case is
under review by the BIR, she filed a claim for refund in
the CTA which was granted.
Issue: W/N the extra-judicial fee’s in settling the
estate is deductable?
Held: Yes, the extra-judicial fee’s in settling the estate
is deductable.
Under the Tax Code, judicial expenses of the
testamentary or intestate proceedings" for purposes of
determining the value of the net estate can be
deductable from the estate. Judicial expenses are
expenses of administration. 19 Administration
expenses, as an allowable deduction from the gross
estate of the decedent for purposes of arriving at the
value of the net estate, have been construed by the
federal and state courts of the United States to include
all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to
the persons entitled to it." 20 In other words, the
expenses must be essential to the proper settlement of
the estate
Coming to the case at bar, the notarial fee paid for the
extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian
of Pedro Pajonar's property during his lifetime should
also be considered as a deductible administration
expense. PNB provided a detailed accounting of
decedent's property and gave advice as to the proper
settlement of the latter's estate, acts which contributed
towards the collection of decedent's assets and the
subsequent settlement of the estate.
3. RAFAEL ARSENIO S. DIZON, in his capacity as
the Judicial Administrator of the Estate of the
deceased JOSE P. FERNANDEZ
vs.
COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 140944 April 30, 2008
Facts:Jose P. Fernandez died in November 7,
1987. Thereafter, a petition for the probate of his will
was filed. The probate court appointed Atty. Rafael
Arsenio P. Dizon as administrator of the Estate of Jose
Fernandez.
An estate tax return was filed later on which showed
ZERO estate tax liability. BIR thereafter issued a
deficiency estate tax assessment, demanding payment
of Php 66.97 million as deficiency estate tax. This was
subsequently reduced by CTA to Php 37.42
million. The CA affirmed the CTA’s ruling, hence, the
instant petition.
The petitioner claims that in as much as the valid
claims of creditors against the Estate are in excess of
the gross estate, no estate tax was due. On the other
hand, respondents argue that since the claims of the
Estate’s creditors have been condoned, such claims
may no longer be deducted from the gross estate of
the decedent.
Issue: W/N the actual claims of creditors may be fully
allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or
condoned through compromise agreements entered
into by the Estate with its creditors?
Held: YES, such deduction is allowed.
Post-death developments are not material in
determining the amount of deduction. This is because
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, i.e.,
the instance of death, the net value of the property
transferred should be ascertained, as nearly as
possible, as of the that time. This is the date-of-death
valuation rule.

The Court, in adopting the date-of-death valuation

principle, explained that:

First. There is no law, nor do we discern any

legislative intent in our tax laws, 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.
It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the
government.

Second. Such construction finds relevance and

consistency in our Rules on Special Proceedings
wherein the term "claims" required to be presented
against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which
could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before
his death. Therefore, the claims existing at the time of
death are significant to, and should be made the basis
of, the determination of allowable deductions.
DONOR's TAX (S98 to S104) 7) DEDUCTIONS OR EXEMPTIONS FROM GROSS
GIFT

1) BASIC PRINCIPLES Dowry or Gifts:

Donor's Tax is that imposed on donation inter vivos.  Made on account of marriage,
 Before its celebration or within one year
B – Direct (the one who pays is the one burdened) thereafter,
A - Ad Valorem (dependent on the value of property)  By parents,
R – Progressive (B4T), AFT - fixed  To their Legitimate or Adopted children,
O – Excise (privilege of gratuitous transfer)  Not exceeding P10,000.00.
P – General (to raise revenues)
S - National Note: This is applicable only to RC, NRC and RA.
This is the only exemption that the NRA cannot avail.
Donation is an act of liberality whereby a person,
called the donor, disposes gratuitously of a thing or Gifts made to or for the use of:
right in favor of another, who is called the donee, who  National Government or any entity created by
accepts it. any of its agencies which is not conducted for
profit; or
Donation inter vivos is deemed perfected from the  To any poltical subdivision of the said
moment the donor learned of the donee's acceptance Government.
of the donation. Donor's Tax is imputed at the time of
the said perfection. Gifts in favor of:
 Educational, charitable, religious, cultural, or
Donation by Both Spouses: social welfare corporations, instututions,
Donations made by both spouses involving conjugal accredited non-government organization or
properties are subject to donor's tax on each donation. trust or philatrophic organization or research
The spouses are considered two different donors for organizations;
the imposition of donor's tax.  Provided, not more than 30% of said gifts shall
be used by such donee for administration
Under Family Code, the consent of the other spouse is purposes; and
needed for a conjugal or absolute common property to  Incorporated as a nonstock entity, paying no
be donated. If for example there is no approval of the dividends, governed by trustees who received
wives, this means that the only thing donated is the no compensation and devoting all its income,
share of the husband. The share of the wife in the whether students' fees or gifts, donation,
conjugal or common property is not prejudiced. subsidies or other forms of philantrophy to the
accomplishment and promotion of the
2&3) CLASSIFICATION and SITUS OF DONOR purposes enumerated in its Articles of
Incorporation.(Note: This 3rd requisite will not
Real and Personal Intangible Personal
Decedent (Tangible) Properties Properties apply in case of nonresident alien donors)
Within Without Within Without
RCD     Mortgage assumed by the donee:
NRCD    
Here, the net gift is measured by deducting from the
RAD    
fair market value of the property the amount of the
NRAD mortgage assumed.
WITHOUT
Reciprocity
X X Diminutions specifically provided by the donor:
Clause
Example: If John donated P500,000 to Peter wih the
NRAD instruction that the lztter shall give P100,000.00 to
WITH X X X
Reciprocity Richard, the taxable net gift would be P400,000.00.
Clause
DC    
8) DONATION TO A STRANGER
FC X  X

A stranger is that which is NOT a:

Note: comments under Estate Tax re: Situs of 1) Brother, sister (whether whole or half blood),
Intangible Property also applies in Donor's Tax. spouse, ancestor and lineal descendant.
2) Relative by consanguinity by collateral line within
4) RECIPROCITY RULE the 4th degree of relationship.
same as Estate Tax.
Effects:
5&6) DETERMINATION OF GROSS GIFT AND NET 1) Donations to relatives shall be subject to the
GIFT; COMPOSITION OF GROSS GIFT schedular rate mentioned in Section 99 (A) of NIRC.
Formula: 2) Donations to stranger are subject to 30% Donor's
GROSS GIFT Tax.
LESS: ALLOWED DEDUCTIONS OR EXPENSES
TAXABLE NET GIFT 9) DONATION TO A QUALIFIED DONEE
DONOR'S TAX DUE INSTITUTION

Valuation of Donation:
 If cash: value or face amount of cash
 Personal property: FMV at time of donation
 Real Property: FMV fixed by the Provincial and
City Assessor or the FMV as determined by the
BIR Commissioner, whichever is higher.
In order to be exempt from donor's tax and claim full
deduction from gross income of the value given to
qualified donee institutions, the following conditions
must be complied with:
 Donee is registered under Philippine Council for
NGO Certification, Inc. (PCNC);
  Donor is engaged in business or engaged in  Previous net gifts made within same calendar
the practice of profession; year, if there's any.
 Donor gives Notice of Donation on every  Name of donee
donation worth at least P50,000 to RDO having  Relatiosnhip of donor and donee; and
jurisdiction over his place of business within 30  Other information that the Commissioner may
days after receiving donee's Certificate of require.
Donation.
 The Certificate of Donation shall be attached to Time and Place of Filing:
the Notice of Donation stating that Not more Return shall be filed within 30 days after the date of
than 30% of the said donation for the taxable the gift was made.
year is used by such qualified-donee in Payment shall be at any of the following:
administration purposes.  Authorized Agent Bank
 Revenued District Officer
10) TRANSFERS FOR LESS THAN ADEQUATE AND  Authorized Treasurer of city or municipality
FULL CONSIDERATION where donor was domiciled at time of
transfer.
This happens when the Fair Market Value of the  If there be no legal residence in the
property exceeded the value of the consideration Philippines, at the Office of the Commissioner.
(selling price).  In case of gifts made by NRA or NRC, payment
may be made with the Philippine Embassy or
Element of donative intent is conclusively presumed in Consulate in country where he is domiciled at
these transfers for less than adequate consideration. time of transfer or with the Office of the
Commissioner.
It does not apply on sale of Real Properties as capital
assets located in the Philippines. 13) PAYMENT OF DONOR'S TAX
Pay as you file.
Relate this topic on 5%/10% CGT on disposition of not
traded shares of stocks. 14) TAX CREDIT FOR DONOR'S TAXES PAID IN A
FOREIGN COUNTRY
11) TRANSFERS WHICH MAY BE CONSTITUTED
AS DONATION Amount of tax credit is limited to the following
limitations, whichever is LOWER:
Condonation or Remission of the Debt (RR No.
2): Limitation A:
1) If an individual performs services to the creditor,
who in consideration thereof cancels the debt, income Net Gifts(per foreign country) x Philippine = limit
Total Net Gifts. Donor's Tax
to the amount is realized by the debtor as
compensation for services.
Limitations B:
2) If a creditor merely desires to benefit a debtor and
without any consideration therefor cancels the debt, Net Gifts(all foreign country) x Philippine = limit
the amount of the debt is a gift from the creditor to Total Net Gifts. Donor's Tax
the debtor and need not be included in the latter's )
gross income. The above formulas are only applicable if there are two
3) If a corporation to which a stockholder is indebted or more foreign countries. In case there is only one,
forgives he debt, the transaction has the effect of apply only Limit A.
payment of dividend.
Note: For illustration, see page 76, Tax 2 Revealed, Chavez,
Renunciation of Inheritance: 2014 edition
1) Renunciation of surviving soouse of his or her share
in the conjugal partnership or absolute community 15) CUMULAIVE METHOD AND SPLITTING
after the dissolution of the marriage in favor of the METHOD
heirs of the deceased spouse or any otner person is
subject to donor's tax. Cumulative Method - applied when there is a second
2) General renunciation by an heir in the hereditary or subsequent donation wihin the same calendar year.
estate left by the decedent is not subject to donor's Formula:
tax.
Gross Gift
EXPN: If specifically or categorically done in
Less: Allowed deduction or exemption
favor of identified heir/s to the exclusion or Net Gift
disadvantage of others in the hereditary estate, then it Add: Prior net gifts within the same calender year.
is now subject to donor's tax. Total Taxable Net gifts
Donor's Tax due on total net gifts
Less: Donor's tax due on prior gifts within same calendar
year
Donor's tax due

Note: For illustration, see page 731, NIRC Volume 2,

12) FILING OF DONOR'S TAX RETURN
Requirements:
Accomplish under oath a donor's tax return
duplicate. The return shall set forth:
 Each gift made during the claendar year;
 Deductions claimed and allowable;
Casasola, 2013 edition
Splitting Method: Splits the donations into different years to
in
relieve the donor of donor's tax.
Example: Instead of making donations of P60,000 in
December 20 and another P60,000 donation in December 30
of same year which would now exceed the P100,000 exempt
threshold of donation, the donor can split it. In this way, he
may donate on December 25, 2016 and another on January 4,
2017 so that the amount of donations will not be cumulated,
ensuring that the donations are still within the P100,000
exemption limit.
16) TAX TREATMENT OF POLITICAL
CONSIDERATION
Any contribution in cash or kind to any candidate,
political party or coalition of pzrties for campaign
purposes, shall be governed by the Election Code, as
amended.
RR-7-2011: Such contributions are NOT subject to
Donor's Tax provided it is duly reported to the
COMELEC.
CASES
1. MANUEL G. ABELLO, JOSE C. CONCEPCION,
TEODORO D. REGALA, AVELINO V. CRUZ
vs.
COMMISSIONER OF INTERNAL REVENUE and
COURT OF APPEALS
G.R. No. 120721 February 23, 2005
(This case is not controlling anymore, but the
discussions on donative intent still prevails)
Facts:
During the 1987 national elections, petitioners, who
are partners in the Angara, Abello, Concepcion, Regala
and Cruz (ACCRA) law firm, contributed ₱882,661.31
each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated
April 21, 1988, the Bureau of Internal Revenue (BIR)
assessed each of the petitioners ₱263,032.66 for their
contributions. On August 2, 1988, petitioners
questioned the assessment through a letter to the BIR.
They claimed that political or electoral contributions
are not considered gifts under the National Internal
Revenue Code (NIRC), and that, therefore, they are
not liable for donor’s tax. The claim for exemption was
denied by the Commissioner.
Petitioners filed a petition for review with the CTA,
which was decided on in favor of the petitioners. On
appeal, the Court of Appeals reversed and set aside
the CTA decision
Petitioners argue that it is important to look into the
intention of the giver to determine if a political
contribution is a gift since animus donandi or the
intention to do an act of liberality is an essential
element of a donation.
Issue: W/N such transaction is considered as donation
thus subject to donors tax?
Held: Yes, such transaction is considered as donation
thus subject to donor’s tax.
First of all, donative intent is a creature of the mind. It
cannot be perceived except by the material and
tangible acts which manifest its presence. This being
the case, donative intent is presumed present when
one gives a part of ones patrimony to another without
consideration.
Second, donative intent is not negated when the
person donating has other intentions, motives or
purposes which do not contradict donative intent.
This Court is not convinced that since the purpose of
the contribution was to help elect a candidate, there
was no donative intent. Petitioners’ contribution of
money without any material consideration
evinces animus donandi. The fact that their purpose
for donating was to aid in the election of the donee
does not negate the presence of donative intent.
2. THE PHILIPPINE AMERICAN LIFE AND
GENERAL INSURANCE COMPANY
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 210987 November 24, 2014
(This case has the same discussion with Metro Pacific
Corporation ,a CTA case, which is the tax implication
on difference between the book value of shares of
stock and selling prince)
Facts:
Petitioner The Philippine American Life and General
Insurance Company (Philamlife) used to own 498,590
Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter's
outstanding capital stock. In 2009, petitioner, in a bid
to divest itself of its interests in the health
maintenance organization industry, offered to sell its
shareholdings in PhilamCare through competitive
bidding. Thus, on September 24, 2009, petitioner's
Class A shares were sold for USD 2,190,000, or PhP
104,259,330 based on the prevailing exchange rate at
the time of the sale, to STI Investments, Inc., who
emerged as the highest bidder.3
Philamlife filed an application for a certificate
authorizing registration/tax clearance with the Bureau
of Internal Revenue (BIR) Large Taxpayers Service
Division to facilitate the transfer of the shares. Months
later, petitioner was informed that it needed to secure
a BIR ruling in connection with its application due to
potential donor’s tax liability. , requested a ruling 4 to
confirm that the sale was not subject to donor’s tax,
pointing out, in its request, the following:
1. that the transaction cannot attract donor’s
tax liability since there was no donative
intent and,ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated
November 27, 2009;5
2. that the shares were sold at their actual
fair market value and at arm’s length; that
as long as the transaction conducted is at
arm’s length––such that a bona fide
business arrangement of the dealings is
done inthe ordinary course of business––a
sale for less than an adequate
consideration is not subject to donor’s tax;
3. and that donor’s tax does not apply to sale
of shares sold in an open bidding process.
Respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlife’s request through
BIR Ruling No. 015-12. As determined by the
Commissioner, the selling price of the shares thus sold
was lower than their book value based on the financial
statements of PhilamCare as of the end of 2008.6 As
such, the Commisioner held, donor’s tax became
imposable on the price difference pursuant to Sec. 100
of the National Internal Revenue Code. In view of the
foregoing, the Commissioner ruled that the difference
between the book value and the selling price in the
sales transaction is taxable donation subject to a 30%
donor’s tax under Section 99(B) of the NIRC.

The petitioner requested respondent Secretary of

Finance but respondent Secretary affirmed the
Commissioner’s assailed ruling in its entirety.

Issue: W/N the deficiency between the book value and

selling prince on the sale shares of stock is subject to
DONOR’S TAX?

Held: Yes, the deficiency on the sale is subject to

donor’s tax.

The absence of donative intent, if that be the

case, 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 fair
market value 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.
VALUE ADDED TAX 3) Source of exemption 3) Source of exemption
is the Tax Code is the Tax Code, special
laws and international
1) CONCEPT agreements.

VAT is a tax on consumption levied on the sale,
barter, exchange 6r lease of goods or properties and
services in the Philippines and on importation of goods
into the Philippines.
Invoice Method aka Tax Credit Method: Under the
VAT method of taxation, an entity can credit against or
subtract from the VAT charged on its sales or outputs,
the VAT it paid on its purchases, inputs and imports.
Note: In every taxable quarter:
Hence, even if he is exempted as a seller from his
direct liability for payment of VAT, but he is not
relieved as a purchaser from is direct burden of VAT
shifted to it by its VAT-registered suppliers, the
purchase transaction is not VAT exempt. (CIR vs
Seagate)
Note: Philippines utilize EXEMPT TRANSACTION.
2) CHARACTERISTICS OF THE PHILIPPINE VAT
SYSTEM

Invoices Passed (Output Tax) B- Indirect

LESS Invoices Received (Input Tax) A– Ad Valorem
Tax payable to BIR R- Regressive
O– Excise
A. If result is negative, i.e. the invoices received P- General
exceeds the invoices passed, the excess shall S- National (NIRC)
be carried over to the succeeding quarter or
quarters. (Added to Output Tax in the 3) IMPACT OF TAXATION vs INCIDENCE OF
succeeding quarters). TAXATION

B. If the input taxes result from zero-rated or
effectively zero-rated transactions or when the
taxpayer would be cancelling his VAT-
registration, any excess input taxes over the
output taxes may instead be refunded to the
taxpayer.
Hence, there is no tax cascading or
pyramiding because what has been subjected
to VAT before may not be further subjected to
VAT.
VAT Rate:
 12% - Secs 106 (A); 107 (A),(B); and 108 (A)
of the NIRC
 0% - Secs. 106 (A)(2); and 108 (B) of NIRC
While the liability on VAT is imposed on one person,
the burden may be passed to another.
The Impact of taxation is on the seller because it is
the one who is statutorily liable for the payment of the
tax.
Note: In the case of importation, the importer
is the one liable for the VAT. (RR-16-2005)
However, the Incidence of the tax is on the final
consumer where the tax comes to rest. The law
provides that the amount of the tax may be shifted or
passed on to the buyer, transferee or lessee of the
goods, properties or services.

To be liable for VAT: 4) CROSS-BOARDER DOCTRINE AND

 Persons liable under Sec. 105; DESTINATION PRINCIPLE
 The amount of gross sales or receipts exceeds
the threshold (P1,919,500.00); Cross-Boarder Doctrine: No VAT shall be imposed to
 It is not one of the exempt transactions under form part of the cost of goods destined for
sec. 109 par. (a) to (v); consumption outside of the territorial boarder of the
 Regardless of annual gross sales or receipts if taxing authority.
the taxpayer opted to be a VAT registered
person; or Destination Principle: Goods and Services are taxed
 An importer whether engaged in the course of only in the country where these are consumed.
business or trade.
Hence, actual export of goods and services
Note: Profit is not a requirement for imposition from the Philippines to a foreign country must be free
of VAT. of VAT; while, those destined for use or consumption
within the Philippines shall be imposed with 12% VAT.
EXEMPT TRANSACTION vs EXEMPT PARTY
Note: By virtue of Cross-Boarder Doctrine, PEZA-
Exempt Transaction Exempt Party registered enterprise are VAT-exempt and no VAT can
1) Involves goods and 1) It is a person granted be passed on to them since Section 8 of PEZA Law (RA
services exempted from VAT exemption by 7916) states that Ecozones are foreign territory.
VAT, regardless if the virtue of which the
party to transaction is party as well as the
VAT-exempt or not. transaction becomes
exempted from tax.
2) Seller here is not 2) Party may be allowed 5) RULE OF REGULARITY
allowed any tax refund a refund of or a credit
of or credit for any input for input taxes paid, VAT is imposed on a sale or transaction entered into by
taxes paid. depending on its a person in the course of trade or business. A
registration as a VAT or transaction will be in the course of trade or business if
non-VAT taxpayer. it is:
 Regularly conducted
  Undertaken in pursuit of a commercial or
economic activity
EXPN:
1) 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. (RR 16-2005).
BIR imposes an obligation on the part of the payor to
withold the corresponding vat.
Note:
1) An importer, whether or not engaged in the course
of trade or business, is subject to VAT. (Sec. 107,
NIRC)
2) Even non—stock, non-profit, organization or
government entity, may be liable to pay VAT on sale
on goods, properties or services as long as the entity
provides service for a fee, remuneration or
consideration. (CIR vs CA & Comaserco, 2000)
3) Incidental transactions (see Mindanao
Geothermal case.)
6) TRANSACTIONS COVERED BY VAT
 VAT on sale of goods or properties (Sec. 106
[A][1])
 Sales of VAT-registered person subject to zero
percent (0%) rate:
o Export Sales (Secs 106[A][2][a])
o Foreign Currency Denominated Sale
(Sec. 106 [b])
o By special laws or international
agreements (Se 106 [c]);
o Transaction subject to zero percent
(0%) rate (Sec. 108 [B])
 Transaction deemed sale (Sec. 106 [B])
 VAT on Importation of goods (Sec. 107 [A])
 Transfer of goods by tax-exempt person (Sec.
107 [B])
 VAT on sale of services and use or lease of
properties (Sec. 108 [A])
 Franchise grantees under Sec.119
7. PERSONS LIABLE TO VAT – SEC. 105
1. Any person who, in the course of trade or
business, sells, barters, exchanges, leases
goods or properties (Sec.106), renders
services (Sec. 108)
2. Any person who imports goods shall be subject
to VAT. (Sec. 107)
3. If a person who is not a VAT-registered person
issues an invoice or receipt showing his
Taxpayer Identification Number (TIN), followed
by the word “VAT” (Sec. 113 D-1)
4. If a VAT registered person issues a VAT invoice
or VAT official receipt for a 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 imposed in Sec. 106 or 108 as if Sec
109 did not apply. (Sec. 113 D-2)
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 RA 7716.
In the course of trade or business
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
nonstock, 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.
EXN: 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.
8. VAT ON SALE OF GOODS OR PROPERTIES –
SEC. 106(A)
There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties,
value-added tax equivalent to 12% of the gross
selling price or gross value in money of the goods
or properties sold, bartered or exchanged, such tax
to be paid by the seller or transferor.
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.
The term "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 value-added tax.
The excise tax, if any, on such goods or properties
shall form part of the gross selling price. (Sec. 106[A])
GROSS SELLING PRICE = total amount of
money or its equivalent which the purchaser
pays to the seller, EXCLUDING the Value-
Added Tax.
Sale of real properties
Sale of real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business of the seller shall
be subject to VAT.
In the case of sale of real properties on the
installment plan, the real estate dealer shall be
subject to VAT on the installment payments,
including interest and penalties, actually
and/or constructively received by the seller.
9. ZERO-RATED SALE OF GOODS OR PROPERTIES,
AND EFFECTIVELY ZERO-RATED SALES OF GOODS
OR PROPERTIES – SEC. 106
 Zero-rated sale of Effectively zero-rated For transactions deemed sale, the output tax shall be
goods or properties transactions based on the market value of the goods deemed sold
as of the time of the occurrence of the transactions.
export sale of goods Local sale of goods or However, in the case of retirement or cessation of
and supply of services supply of services by a business, the tax base shall be the acquisition cost or
VAT-registered person to the current market price of the goods or properties,
a person or entity who whichever is lower.
was granted indirect tax
exemption under special In case of a sale where the gross selling price is
laws or international unreasonably lower than the fair market value (FMV),
agreement. the AMV shall be the tax base.
tax rate is zero tax rate is zero
RR 4-2007 – VAT is imposed and collected on every
when applied to tax when applied to tax sale, barter or exchange or transactions “deemed sale”
base: such rate base: such rate does of taxable goods or properties at the rate of 12% of
results in NO tax NOT yield any tax the gross selling price or gross value in money of
chargeable against chargeable against the the goods or properties sold, bartered, or
the purchaser purchaser exchanges, or deemed sold in the Philippines.

seller of such seller of such 11. VAT ON IMPORTATION OF GOODS – SEC. 107
transactions charges transactions charges
NO output tax output tax There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to
seller can claim a seller can claim a refund twelve percent (12%) based on the total value
refund of or tax credit of or tax credit certificate used by the Bureau of Customs in determining tariff
certificate for the VAT for the VAT previously and customs duties plus customs duties, excise taxes,
previously charged by charged by suppliers if any, and other charges, such tax to be paid by the
suppliers importer prior to the release of such goods from
customs custody: Provided, That where the customs
NOTE: any input tax attributable to zero-rated sales duties are determined on the basis of the quantity or
by a VAT-registered person may at his option be volume of the goods, the value-added tax shall be
refunded or credited against other internal based on the landed cost plus excise taxes, if any.
revenue taxes within two (2) years after the (Sec. 107[A])
close of the taxable quarter when the sales were
made. The input tax attributable to zero-rated sales VAT is imposed on goods brought into the Philippines,
simply refers on the seller's purchases of goods, whether for use in business or not, except those
properties or services related to such export or zero- mentioned in Sec. 109(1) of the Code.
rated sale.
The VAT on importation shall be paid by the importer
In “effectively zero-rated sale of goods and properties” prior to the release of such goods from customs
transactions which, although not involving actual custody.
export, are considered as “constructive export” shall
be entitled to the benefit of zero-rating, such as local "Importer" refers to any person who brings goods
sales of goods and properties to persons or entities into the Philippines, whether or not made in the course
covered under pars. (a) no. (3) - (sale to export- of his trade or business. It includes non-exempt
oriented enterprises), (a) no. (6) - (sale of goods, persons or entities who acquire tax-free imported
supplies, equipment and fuel to persons engaged in goods from exempt persons, entities or agencies. (Sec.
international shipping or international air transport 4.107-1, RR 16-2005)
operations), (b) (Foreign Currency Denominated Sale)
and (c) (Sales to Tax-Exempt Persons or Entities) of 12. VAT ON SALE OF SERVICES AND USE OR
the preceding section. LEASE OF PROPERTY – SEC. 108

10. TRANSACTIONS DEEMED SALE – SEC. 106(B)
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, e.g., pull out
of goods for personal use;
2. Distribution or transfer to:
a. Shareholders or investors as share in the
profits of VAT-registered persons; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods
were consigned; and
4. Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation. (Sec. 106[B])
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.
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.
Gross receipts
The total amount of money or its equivalent
representing the contract price, compensation, service
fee, rental or royalty, including the 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. (Sec. 108[A])
13. ZERO-RATED SALE OF SERVICES – SEC.
108(B)

The following services performed in the Philippines
by VAT- registered persons shall be subject to 0%
rate:
1. Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the
preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or to a
nonresident person not engaged in business who is
outside the Philippines when the services are
performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
3. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate;
4. Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof;
5. Services performed by subcontractors and/or con
tractors in processing, converting, of manufacturing
goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production;
6. Transport of passengers and cargo by air or sea
vessels from the Philippines to a foreign country; and
7. Sale of power or fuel generated through renewable
sources such as, but not limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and
other emerging energy sources using technologies
such as fuel cells and hydrogen fuels.
The recipient of such services must be doing business
outside the Philippines.
Destination Principle
Exports are zero-rated whereas imports are taxed.
EXN: 0% VAT on services enumerated under
Sec. 108(b)
Requisites:
The services must be (a) performed in the Philippines;
(b) for a person doing business outside the Philippines;
and (c) paid in acceptable foreign currency accounted
for in accordance with BSP rules.
14. VAT-EXEMPT TRANSACTIONS
In addition to the express provision of Sec. 109(A) to
(W), the following are VAT exempt persons:
1. Secs. 109(A) to (V), as amended by RA 10378
dated 7 March 2013
2. Sec. (W), gross annual sales or receipts do not
exceed P1,919,500.
3. Any business principally for subsistence or livelihood
provided that the aggregate gross sales or receipt
during the 12-month period shall not exceed
P100,000.00. (RMO 4-98)
4. VAT exempt under special laws or treaty.
Transactions under Sec. 109 are also not subject to
other percentage tax of 3%, and are likewise not
entitled to the benefit of claiming input tax credit or
refund.
In Sec. 109, it provides that: [With excerpts from RR
16-2005]
(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the
value-added tax:
a. Agricultural and marine food products in their
original state, livestock and poultry and breeding stock
and genetic material.
Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation
or preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt, and copra
shall be considered in their original state;
b. Fertilizers; seeds, seedlings and fingerlings; fish,
prawn, livestock and poultry feeds;
c. Personal and household effects belonging to the
resident citizens;
Importation of personal & household effects
belonging to the residents or non-residents of the
Philippines returning from abroad to resettle, provided
that such goods are EXEMPT FROM CUSTOMS
DUTIES.
d. Professional instruments and implements, wearing
apparel, domestic animals, and personal household
effects;
e. Services subject to percentage tax under Title V;
f. Agricultural contract growers and millers
g. Medical, dental, hospital and veterinary services
Medical, dental, hospital and veterinary services
except those rendered by professionals.
Laboratory services (to in and out patients) are
exempt from VAT.
Hospital or clinic operates a pharmacy or drug
store, the sale of drugs and medicine (to
OUT patients) is subject to VAT; but the sale of
drugs and medicine (to IN patients) is VAT-
exempt.
h. Educational services
i. Services under employer-employee relationship
j. Services by multinational companies
k. Transaction under international agreement
l. Sales by agricultural cooperatives
m. Lending activities by credit or multi-purpose
cooperatives
 Cooperatives must be duly registered with the Input Tax
Cooperative Development Authority The VAT due from or paid by a VAT-registered person
in the course of his trade or business:
n. Non-agricultural, non-electric, and non-credit 1. On importation of goods;
cooperatives 2. Local purchase of goods or services;
3. Including lease or use of property from a
o. Export sales by persons who are not VAT-registered VAT-registered person.
4. It shall also include the transitional input tax
p. Sale of real properties and the presumptive input tax determined in
accordance with Sec. 111 of the Code.
q. Lease of residential units
VAT Payable (Excess output)
Monthly rent must not exceed P12,800 regardless If at the end of any taxable quarter the output tax
of the annual aggregate income. exceeds the input tax, the excess shall be paid by the
VAT-registered person. (Sec. 4110-7, RR 16-2005)
4 cases:
MONTHLY ANNUAL TAX Excess Input Tax
INCOME AGGREGATE IMPLICATION If the input tax inclusive of input carried over from the
INCOME previous quarter exceeds the output tax, the excess
Does not Does not exceed EXEMPT input tax shall be carried over to the succeeding
exceed P1,919,500 quarter or quarters; Provided, however, that any input
P12,800 tax attributable to zero-rated sales by a VAT-registered
Does not Exceeds EXEMPT person may at his option be refunded or applied for a
exceed P1,919,500 tax credit certificate which may be used in the
P12,800 payment of internal revenue taxes, subject to the
Exceeds Does not exceed Subject to 3% limitations as may be provided for by law, as well as,
P12,800 P1,919,500 Percentage Tax other implementing rules. (RR No. 2-2007)

Exceeds Exceeds Subject to 12% 16. SUBSTANTIATION OF INPUT TAX CREDITS

P12,800 P1,919,500 VAT
a. Input taxes for the importation of goods or the
domestic purchase of goods, properties or services is
r. Books and any newspaper, magazine, review, or made in the course of trade or business, whether such
bulletin input taxes shall be credited against zero-rated sale,
Covers only printed materials. Online publications non-zero-rated sales, or subjected to the 5% Final
are subject to VAT Withholding VAT, must be substantiated and supported
by the following documents, and must be reported in
the information returns required to be submitted to the
Bureau:

s. Transport of passengers by international carriers 1. For the importation of goods — import entry or
other equivalent document showing actual
GOODS PASSENGERS payment of VAT on the imported goods.
Internation 2. For the domestic purchase of goods and
Internation
Domestic
al
Domestic al properties invoice showing the information
required under Sections 113 and 237 of the Tax
12% 12% 0% VAT
Arial 0% VAT Code.
VAT VAT
3. For the purchase of real property — public
12% 12% 0% VAT
Sea 0% VAT instrument i.e., deed of absolute sale, deed of
VAT VAT
conditional sale, contract/agreement to sell, etc.,
Land 12% VAT 3% CCT
together with VAT invoice issued by the seller.
4. For the purchase of services — official receipt
showing the information required under Sections
t. Cargo vessels and aircraft, including engine 113 and 237 of the Tax Code. (Refer to topic 19
equipment and spare parts for this)

u. Fuel, goods, and supplies of international shipping A cash register machine tape issued to a registered
or air transport buyer shall constitute valid proof of substantiation of
tax credit only if it shows the information required
v. Banks and non-bank financial intermediaries under Sections 113 and 237 of the Tax Code.

w. Goods or properties or the performance of services
subject to P1,919,500.
15. DETERMINATION OF OUTPUT TAX, INPUT
TAX, VAT PAYABLE, AND EXCESS INPUT TAX
CREDITS
Output Tax
The VAT due on the sale or lease of goods, properties
or services by any person registered or required to be
registered under Sec. 236(g) of the Code.
b. Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list to be
submitted to the BIR.
c. Input tax on "deemed sale" transactions shall be
substantiated with the invoice required under Sec.
4.113-2 of these Regulations.
d. Input tax from payments made to non-residents
(such as for services, rentals and royalties) shall be
supported by a copy of the Monthly Remittance Return
of Value Added Tax Withheld (BIR Form 1600) filed by
the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld
by the payor.
e. Advance VAT on sugar shall be supported by the
Payment Order showing payment of the advance VAT.
(Sec. 4.110-8 RR 16-2005)
*Under RA 7361, effective on the 4th quarter of the
taxable year 2006 the 70% limit on creditable input
tax is no longer applicable.
17. TRANSITIONAL INPUT TAX AND
PRESUMPTIVE TAX – SEC. 111(a)
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.
Fort Bonifacio Dev’t. Corp. v. CIR – GR. No.
173425
Prior payment of taxes is not required to avail of the
transitional input tax credit because it is not a tax
refund per se but a tax credit. All that is required is for
the taxpayer to file the beginning inventory with the
BIR.
18. REFUND OR TAX CREDIT OF EXCESS INPUT
TAX – SEC. 112
Zero-rated or effectively zero-rated sales
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) within two (2) years after the close of
the taxable quarter when the sales were made.
Provided that in case of:
1. sale and actual shipment of goods from the
Philippines to a foreign country; 2. sale of raw
materials or packaging materials to a nonresident
buyer for delivery to a resident local export-
oriented enterprise; and
3. foreign currency denominated sale;
4. processing, manufacturing or repacking goods
for other persons doing business outside the
Philippines which goods are subsequently exported
(transactions subject to zero percent rate)
5. services other than those mentioned in the
preceding paragraph rendered to a person
engaged in business conducted outside the
Philippines or to a nonresident person not engaged
in business who is outside the Philippines when the
services are performed;..the acceptable foreign
currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the
date of submission of complete documents in support
of the application filed in accordance with Subsection
(A) hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
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.
19. INVOICING REQUIREMENTS
A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange
of goods or properties; and
2. A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange
of services.
Information Contained in the VAT Invoice or VAT
Official Receipt
The following information shall be indicated in the VAT
invoice or VAT official receipt:
1. A statement that the seller is a VAT-registered
person, followed by his Taxpayer's Identification
Number (TIN);
2. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax: Provided,
That:
a. The amount of the tax shall be shown as a
separate item in the invoice or receipt;
b. If the sale is exempt from value-added tax, the
term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
c. If the sale is subject to zero percent (0%) value-
added tax, the term "zero-rated sale" shall be
written or printed prominently on the invoice or
receipt;
d. If the sale involves goods, properties or services
some of which are subject to and some of which are
VAT zero-rated or VAT-exempt, the invoice or
receipt shall clearly indicate the breakdown of the
sale price between its taxable, exempt and zero-
rated components, and the calculation of the value-
added tax on each portion of the sale shall be
shown on the invoice or receipt: Provided, That the
seller may issue separate invoices or receipts for
the taxable, exempt, and zero-rated components of
the sale.
3. The date of transaction, quantity, unit cost and
description of the goods or properties or nature of the
service; and
4. In the case of sales in the amount of one thousand
pesos (P1,000.00) or more where the sale or transfer
is made to a VAT-registered person, the name,
business style, if any, address and Taxpayer
Identification Number (TIN) of the purchaser, customer
or client.
 Accounting Requirements
Notwithstanding the provisions of Sec. 233, all
persons subject to the value-added tax under Sees.
106 and 108 shall, in addition to the regular
accounting records required, maintain a subsidiary
sales journal and subsidiary purchase journal on
which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as
may be required by the Secretary of Finance.
20-21. FILING OF MONTHLY AND QUARTERLY
VAT RETURNS; PAYMENT OF VAT; RETURNA AND
PAYMENT OF VAT -
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 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.
Any person, whose registration has been cancelled 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. (Sec 114[A])
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:
1. An authorized agent bank,
2. Revenue Collection Officer or
3. Duly authorized city or municipal
Treasurer in the Philippines located within
the revenue district where the taxpayer is
registered or required to register. (Sec. 114 [B])
22. WITHHOLDING OF FINAL VAT ON SALES TO
GOVERNMENT
The following are mandated to deduct and withhold a
final VAT before making payment on account of each
purchase of goods and services which are subject to
VAT imposed in Secs. 106 and 108 of the Code:
1. The Government;
2. Any of its political subdivisions,
instrumentalities or agencies;
3. Including GOCCs;
A. Deduct and withhold a final VAT at the rate of 5% of
the gross payment thereof.
B. The payment for lease or ruse of properties or
property rights to non- residents owners shall be
subject to 10% withholding tax at the time of
payment.
The payor or person in control of the payment shall
be considered as the withholding agent. (Sec. 114 [C])
The VAT withheld under this Section shall be remitted
within 10 days following the end of the month the
withholding was made.
23. BIR “OPLAN KANDADO” PROGRAM
Under this program, business operations of non-
compliant taxpayers will be suspended and their
establishments will be temporarily closed if they
will be found to have violated certain tax laws.
“Oplan Kandado” aims to intensify the Bureau’s
enforcement operations through strict imposition of
prescribed administrative sanctions for noncompliance
with the basic tax requirements.
Grounds:
1. failure to issue receipts or invoices by a VAT-
registered or registrable taxpayer;
2. failure to file a VAT return;
3. understatement of taxable sales or receipts by 30%
or more of the correct amount thereof in the case of a
VAT-registered or registrable taxpayer;
4. failure to register
NOTE: The closure of a business establishment shall
last for a period of not less than five (5) days,
and shall be in force until the violation is rectified
by the concerned taxpayer.
The suspension and temporary closure of business
shall not preclude the BIR from filing the
appropriate charges under the Run After Tax
Evaders (RATE) Program of the Bureau, if
evidence so warrants, against the taxpayer concerned
or responsible officers of the corporations (in case of
corporate taxpayers).
The Closure Order shall only be lifted by the BIR
when there has been:
a) subsequent filing or amendment of returns
with the payment of the tax inclusive of statutory
penalties;
b) subsequent registration with the payment
of the corresponding compromise
penalties;
c) payment of deficiency taxes inclusive of
penalties corresponding to the sales where no
invoices/receipts have been issued; and
d) payment of deficiency taxes inclusive of
penalties corresponding to the
understatement of taxable sales or receipts.
NOTE: The lifting of the Closure Order shall not
release the taxpayer from the compliance
requirements and from the penalties prescribed
by the Tax Code for the violation, which shall be dealt
with by criminal prosecution or by compromise
settlement.
CASES
1. COMMISSIONER OF INTERNAL REVENUE
vs.
SEAGATE TECHNOLOGY
G.R. No. 153866 February 11, 2005
Applicable doctrines, principle or requisites:
Zero-Rated vs Effectively Zero-Rated Transactions
-Zero-rated transactions generally refer to the export
sale of goods and supply of services. Whereas,
Effectively zero-rated transactions, however, refer to
the sale of goods50 or supply of services51 to persons
or entities whose exemption under special laws or
international agreements to which the Philippines is a
signatory effectively subjects such transactions to a
zero rate.

-In both transaction, results in no tax chargeable
against the purchaser. The seller of such transactions
charges no output tax,49 but can claim a refund of or a
tax credit certificate for the VAT previously charged by
suppliers.
Exempt Transaction vs Exempt Party
-exempt transaction involves goods or services which,
by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without
regard to the tax status -- VAT-exempt or not -- of the
party to the transaction. Whereas, exempt party, on
the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a
signatory, and by virtue of which its taxable
transactions become exempt from the VAT
-In an exempt transaction is not subject to the VAT,
but the seller is not allowed any tax refund of or credit
for any input taxes paid. Whereas an exempt party is
also not subject to the VAT, but may be allowed a tax
refund of or credit for input taxes paid, depending on
its registration as a VAT or non-VAT taxpayer.
Note: Applying this principle to the case at bar, the
purchase transactions entered into by respondent are
not VAT-exempt.
Cross-border Principles- No VAT shall be imposed to
form part of the cost of goods destined for
consumption outside of the territorial border of the
taxing authority.
VAT refund requirement:
1. Respondent is a VAT-registered entity;
2. The input taxes paid on the capital goods of
respondent are duly supported by VAT invoices and
have not been offset against any output taxes; and
3. No question as to either the filing of such
claims within the prescriptive period or the validity of
the VAT returns has been raised.
Facts:
SEAGATE TECHNOLOGY is a resident foreign
corporation duly registered with the Securities and
Exchange Commission to do business in the
Philippines, with principal office address at the new
Cebu Township One, Special Economic Zone, Barangay
Cantao-an, Naga, Cebu. Respondent, is registered with
the Philippine Export Zone Authority (PEZA) and has
been issued PEZA Certificate pursuant to Presidential
Decree No. 66, as amended, to engage in the
manufacture of recording components primarily used
in computers for export. It is VAT (Value Added Tax)-
registered entity as evidenced by VAT Registration
Certification. VAT returns for the period 1 April 1998 to
30 June 1999 have been filed by respondent. An
administrative claim for refund of VAT input taxes in
the amount of P28,369,226.38 with supporting
documents (inclusive of the P12,267,981.04 VAT input
taxes subject of this Petition for Review), was filed on
4 October 1999 with Revenue District Office No. 83,
Talisay Cebu. The administrative claim for refund by
the respondent on October 4, 1999 was not acted upon
by the Commissioner, petitioner, prompting the
respondent to elevate the case to the CTA.
Petitioner raised a Special and Affirmative Defenses, to
wit:
Granting, without admitting, that respondent is a PEZA
registered Ecozone Enterprise, then its business is not
subject to VAT pursuant to Section 24 of RA 7916 in
relation to Section 103 of the Tax Code, as amended.
As respondent’s business is not subject to VAT, the
capital goods and services it alleged to have purchased
are considered not used in VAT taxable business. As
such, respondent is not entitled to refund of input
taxes on such capital goods pursuant to Section
4.106.1 of RR7-95, and of input taxes on services
pursuant to Section 4.103 of said regulations.
On July 19, 2001, the Tax Court rendered a decision
granting the claim for refund. CA affirmed the Decision
of the CTA.
Issue: W/N the respondent is entitled for a tax refund
for input VAT paid on capital goods purchased, for
business not subject to VAT?
Held:
Yes, respondent is entitled for a tax refund for
unutilized input VAT paid on capital goods purchased.
An exempt party is a person or entity granted VAT
exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a
signatory, and by virtue of which its taxable
transactions become exempt from the VAT.
Such party is also not subject to the VAT, but may be
allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT
taxpayer. In relation, Under PD 66, a PEZA-registered
enterprise within a special economic zone shall not be
subject to internal revenue laws and regulations for
raw materials, supplies, articles, equipment,
machineries, spare parts and wares, except those
prohibited by law, brought into the zone to be stored,
broken up, repacked, assembled, installed, sorted,
cleaned, graded or otherwise processed, manipulated,
manufactured, mixed or used directly or indirectly in
such activities.
In the case at bar, respondent is entitled to the fiscal
incentives and benefitsprovided for in either PD 66or
EO 226 for being a PEZA-registered enterprise within a
special economic zone. The VAT on capital goods is an
internal revenue tax from which the respondent as an
entity is exempt. Although the transactions involving
such tax are not exempt, respondent as a VAT-
registered person, however, is entitled to their credits.
Alternative Answer:
Yes, respondent is entitled for a tax refund unutilized
input VAT paid on capital goods purchased.
Effectively zero-rated transactions are the sale of
goods or supply of services to persons or entities
whose exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate.
Which results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
In the case at bar, respondent is entitled to the fiscal
incentives and benefits provided for in either PD 66 or
EO 226 for being a PEZA-registered enterprise within a
special economic zone. Since the purchases of
respondent are not exempt from the VAT, the rate to
be applied is zero. Its exemption under both PD 66 and
RA 7916 effectively subjects such transactions to a
zero rate, because the ecozone within which it is
registered is managed and operated by the PEZA as
a separate customs territory.
2. MINDANAO II GEOTHERMAL PARTNERSHIP,
vs.
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193301 March 11, 2013
Applicable doctrines, principle or requisites:
Facts:
Mindanao Geothermal Partnership sold its fully
depreciated Nissan Patrol. It asserts that is not an
incidental transaction in the course of its business;
hence, it is an isolated transaction that should not
have been subject to 10% VAT. Mindanao II relies on
Commissioner of Internal Revenue v. Magsaysay Lines,
Inc. (Magsaysay)55 and Imperial v. Collector of Internal
Revenue (Imperial)56 to justify its position. In those
cases the vessels are sold out of Government’s policy
for privatization which ruled by the Court that such
transactions are not subject to VAT.
Issue: W/N the isolated transactions are subject to
VAT?
Held: Yes, isolated transactions are subject to VAT.
Mindanao II’s sale of the Nissan Patrol is said to be an
isolated transaction. However, it does not follow that
an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a
reading of Section 105 of the 1997 Tax Code would
show that a transaction "in the course of trade or
business" includes "transactions incidental thereto."
In the cases relied by the petitioner, Commissioner of
Internal Revenue v. Magsaysay Lines, Inc.
(Magsaysay)55 and Imperial v. Collector of Internal
Revenue (Imperial)56 decided under the NIRC of 1986,
involved the sale of vessels of the National
Development Company (NDC) to Magsaysay Lines, Inc.
the Court ruled that the sale of vessels was not in the
course of NDC’s trade or business as it was involuntary
and made pursuant to the Government’s policy for
privatization.
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.
3. COMMISSIONER OF INTERNAL REVENUE
vs.
COURT OF APPEALS and COMMONWEALTH
MANAGEMENT AND SERVICES CORPORATION
G.R. No. 125355 March 30, 2000
Facts:
Commonwealth Management and Services
Corporation (COMASERCO, for brevity), is a Upon President Benigno C. Aquino III’s assumption of
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)
amounting to P351,851.01, for taxable year 1988
COMASERCO stressed that it was not profit-motivated
"only on reimbursement-of-cost basis.", 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.
CTA rendered decision in favor of the Commissioner of
Internal Revenue and CA rendered decision reversing
that of the CTA. The Court of Appeals, in that case,
reasoned that COMASERCO was not engaged in
business of providing services to Philamlife and its
affiliates. In the same manner, the Court of Appeals
held that COMASERCO was not liable to pay VAT for it
was not engaged in the business of selling services.
Commissioner of Internal Revenue filed with this Court
a petition for review on certiorari assailing the decision
of the Court of Appeals
Issue: W/N COMASERCO was engaged in the sale of
services, and thus liable to pay VAT?
Held: Yes, COMASERCO was engaged in the sale of
services, and thus liable to pay VAT
Under the Tax Code, 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 nonstock, nonprofit organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members of their
guests), or government entity.
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, (in this case the " reimbursement-of-
cost basis"), then the service rendered is subject to
VAT.
4. RENATO V. DIAZ and AURORA MA. F. TIMBOL
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193007 July 19, 2011
Facts:
office in 2010, the BIR revived the idea and would
impose the challenged tax on toll fees beginning
August 16, 2010 unless judicially enjoined. Petitioners
hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the
meaning of "sale of services" that are subject to VAT;
that a toll fee is a "user’s tax," not a sale of services;
that to impose VAT on toll fees would amount to a tax
on public service.
Issue:
1. W/N toll fees are within the meaning of "sale
or exchange of services" that are subject to VAT?
2. W/N tax on toll fees amount to a tax on a tax?
Held:
1. Yes, toll fees are included in the phrase "sale
or exchange of services" which are subject to VAT.
Under the Tax Code Section 108 , defines "sale
or exchange of services" which means the performance
of all kinds of services in the Philippines for others for
a fee, remuneration or consideration. The law imposes
VAT on "all kinds of services" rendered in the
Philippines for a fee, including those specified in the
list. The enumeration of affected services is not
exclusive.11 By qualifying "services" with the words "all
kinds," Congress has given the term "services" an all-
encompassing meaning. Every activity that can be
imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of
law especially excludes it.
In the case at bar, tollway operator is no
different from the following service providers under
Section 108 who allow others to use their properties or
facilities for a fee (example: Lessors of property,
whether personal or real; Warehousing service
operators; Lessors or distributors of cinematographic
films; Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
Lending investors (for use of money); 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; and
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). In addition, tollway operators are
franchise grantees and they do not belong to
exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of
less than P10 million and gas and water utilities) that
Section 11913 spares from the payment of VAT.
2. No, tax on a toll fees does not amount to a tax
on a tax.
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, on the other hand, 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. Although toll fees are charged for
the use of public facilities, therefore, they are not
government exactions that can be properly treated as
a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be
demanded by either the government or private
individuals or entities, as an attribute of ownership.
Moreover, 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.
(Note: relate this case to the SM case where the Court
lax its coverage on the phrase "sale or exchange of
services")
5. COMMISSIONER OF INTERNAL REVENUE
vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA
REALTY DEVELOPMENT CORPORATION
G.R. No. 183505 February 26, 2010
Applicable doctrines, principle or requisites:
-When the intent of the law is not apparent as worded,
or when the application of the law would lead to
absurdity or injustice, legislative history is all
important. In such cases, courts may take judicial
notice of the origin and history of the law, the
deliberations during the enactment, as well as prior
laws on the same subject matter to ascertain the true
intent or spirit of the law.
Facts: Respondents SM Prime Holdings, Inc. (SM) and
First Asia Realty Development Corporation (First Asia)
are domestic corporations duly organized and existing
under the laws of the Republic of the Philippines. Both
are engaged in the business of operating cinema
houses, among others.
The Bureau of Internal Revenue (BIR) sent SM Prime
and First Asia a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on cinema ticket
sales. In response, respondents filed a letter-protest.
The BIR denied the protest filed by respondents and
ordered it to pay the VAT deficiency.
Respondents filed a Petition for Review before the CTA,
which rendered judgment in favor of the respondents.
It ruled that the activity of showing cinematographic
films is not a service covered by VAT under the
National Internal Revenue Code (NIRC) of 1997, as
amended, but an activity subject to amusement tax
under RA 7160 (LGC). Likewise , CTA En Banc affirmed
CTA’s judgment. CIR filed an appeal to the SC, arguing
that cinema operators/proprietors are not exempt from
law (NIRC).
Issue: W/N ticket sales from operators or proprietors
of cinema/theater houses are subject to VAT?
Held: No, ticket sales from operators or proprietors of
cinema/theater houses are not subject to VAT.
The legislature never intended operators or proprietors
of cinema/theater houses to be covered by VAT.
Several amendments were made to expand the
coverage of VAT. However, none pertain to
cinema/theater operators or proprietors. At present,
only lessors or distributors of cinematographic films
are subject to VAT. However, is not the same as the
showing or exhibition of motion pictures or films of
which, basing on CTA En Banc ruling, Exhibition is to
show or display, To produce anything in public so that
it may be taken into possession. While, lease" is
defined as "a contract by which one owning such
property grants to another the right to possess, use
and enjoy it on specified period of time in exchange for
periodic payment of a stipulated price, referred to as
rent. On the other hand, the local government
continued to impose amusement tax on admission
tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements.
Moreover, contrary to the view of petitioner,
respondents need not prove their entitlement to an
exemption from the coverage of VAT. The rule that tax
exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly
subject to the tax being levied against him. The reason
is obvious: it is both illogical and impractical to
determine who are exempted without first determining
who are covered by the provision. Thus, unless a
statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled
rule that the imposition of a tax cannot be
presumed. In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor
of the taxpayer.
(note: in the discussion, this paragraph was
emphasized by sir: why is it in the case of Diaz, toll
fees, the Court made a more broader coverage on the
phrase "sale or exchange of services" which he (sir)
did not explain but I think ,as stated in the case:
To impose an unreasonable burden on cinema/theater
houses operators or proprietors, who would be paying
an additional 10%55 VAT on top of the 30%
amusement tax imposed by Section 140 of the LGC of
1991, or a total of 40% tax.
The power of taxation is sometimes called also the
power to destroy. Therefore, it should be exercised
with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the
"hen that lays the golden egg." And, in order to
maintain the general public's trust and confidence in
the Government this power must be used justly and
not treacherously.)
6. TAMBUNTING PAWNSHOP, INC.
vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 179085 January 21, 2010
Facts:
Petitioner protested the assessment of tax
including VAT, it argued that Pawnshops are not
included in the enumeration under sec 108 of the
NIRC.
Issue: W/N Pawnshops are subject to VAT?
Held: No, Pawnshops are not subject to VAT.
Under R.A. No. 9238, pawnshops are classified as
Other Non-bank Financial Intermediaries. Furthermore,
under Sec. 109 par V of NIRC, Exempt transaction,
Other Non-bank Financial Intermediaries are exempted
from VAT.
In the case at bar, petitioner being classified as
other non-bank financial intermediaries, are not
subject to VAT.
Note: the digest is short since this case focuses on the
status of a pawnshop in relation to VAT imposition. The
case merely discuss the chronological imposition of
VAT on pawnshop since there are some years that
pawnshops are subject to VAT prior to the effectively
of RA 9238(2004). But as of 2004 pawnshops are
exempt from VAT.
7. COMMISSIONER OF INTERNAL REVENUE
vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC.
G.R. No. 168129 April 24, 2007
(This case has the same discussion with the Medicard
Philippine case (case # 11) ,a CTA case, which discuss
the tax implication on this kind of health provider
scheme)
Facts:
The Philippine Health Care Providers, Inc.
(PHILHEALTH), herein respondent, is a corporation
organized and existing under the laws of the Republic
of the Philippines. Pursuant to its Articles of
Incorporation,2 its primary purpose is "To establish,
maintain, conduct and operate a prepaid group
practice health care delivery system or a health
maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial
responsibilities of the organization." (you may go
directly to the issue)
CIR, through the VAT Review Committee of the Bureau
of Internal Revenue (BIR), issued VAT Ruling No. 231-
88 stating that respondent, as a provider of medical
services, is exempt from the VAT coverage.
Meanwhile, on January 1, 1996 R.A. No. 7716
(Expanded VAT or E-VAT Law) took effect, amending
further the National Internal Revenue Code of 1977. In
1999, BIR sent respondent a Preliminary Assessment
Notice for deficiency in its payment of the VAT and
documentary stamp taxes (DST) for taxable years
1996 and 1997. Respondent filed a protest but CIR did
not take any action, which lead for the respondent to
file a Petition to Review before the CTA.
CTA ordered the respondent to pay the deficiency VAT,
which respondent filed a Motion for Reconsideration.
CTA granted respondent's motion, which held that
petitioner is a service contractor subject to VAT since it
does not actually render medical service but merely
acts as a conduit between the members and
petitioner's accredited and recognized hospitals and
clinics. However, petitioner is entitled to the benefit of
non-retroactivity of rulings guaranteed under Section
246 of the Tax Code, in the absence of showing of bad
faith on its part. Since petitioner relied on VAT Ruling
No. 231-88
Petitioner seasonably filed with the CA a petition for
review, but CA affirmed the CTA.
Issue: W/N PHILHEALTH is subject to VAT?
Held: Yes, PHILHEALTH is subject to VAT.
Under the Tax Code, medical, dental, hospital and
veterinary services except those rendered by
professionals are exempt from VAT. However,
PHILHEALTH is not actually rendering medical service
but merely acting as a conduit between the members
and their accredited and recognized hospitals and
clinics. It merely provides and arranges for the
provision of pre-need health care services to its
members for a fixed prepaid fee for a specified period
of time, its services are not VAT-exempt
The Court made its ruling base on the following
conclusions:
a) Respondent "is not actually rendering medical
service but merely acting as a conduit between the
members and their accredited and recognized hospitals
and clinics."
b) It merely "provides and arranges for the provision
of pre-need health care services to its members for a
fixed prepaid fee for a specified period of time."
c) It then "contracts the services of physicians, medical
and dental practitioners, clinics and hospitals to
perform such services to its enrolled members;" and
d) Respondent "also enters into contract with clinics,
hospitals, medical professionals and then negotiates
with them regarding payment schemes, financing and
other procedures in the delivery of health services."
8. PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR),
vs.
THE BUREAU OF INTERNAL REVENUE (BIR)
G.R. No. 172087 March 15, 2011
Facts:
PAGCOR was created pursuant to Presidential Decree
(P.D.) No. 1067-A on January 1, 1977. Simultaneous
to its creation, P.D. No. 1067-B (supplementing P.D.
No. 1067-A) was issued exempting PAGCOR from the
payment of any type of tax, except a franchise tax of
five percent (5%) of the gross revenue. Thereafter, on
June 2, 1978, P.D. No. 1399 was issued expanding the
scope of PAGCOR's exemption.
National Internal Revenue Code of 1997, took effect.
Section 27 (c) of R.A. No. 8424 provides that
government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except
petitioner PAGCOR. On May 24, 2005, certain sections
of the National Internal Revenue Code of 1997 were
amended (RA 9337) excluding PAGCOR from the
enumeration of GOCCs that are exempt from payment
of corporate income tax of which the Court upheld its
constitutionality.
Subsequently, BIR issued RR No. 16-2005, specifically
identifying PAGCOR as one of the franchisees subject
to 10% VAT
Issue: W/N PAGCOR can be subject to VAT?
Held: No, PAGCOT cannot be subject to VAT
Under P.D. 1869, the charter creating PAGCOR, grants
the latter an exemption from the payment of taxes.
Section 13 expressly provides that no tax of any kind
or form, except Franchise Tax of five (5%) percent of
the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. In
the above provisos clearly gives PAGCOR a blanket
exemption to taxes with no distinction on whether the
taxes are direct or indirect. Furthermore, under the
Tax Code, transactions which are exempt under
international agreements to which the Philippines is a
signatory or under special laws are exempt from
tax.
The BIR exceeded its authority in subjecting PAGCOR
to 10% VAT under RR No. 16-2005; hence, the said
regulatory provision is hereby nullified.
Question: if PAGCOR will rent/lease an office or
building, will PAGCOR be liable for the VAT
passed on by its owner/lessor?
No, Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes
provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with
PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the
absolute tax exemption of the World Health
Organization (WHO) upon an international agreement
was upheld. We held in said case that the exemption of
contractee WHO should be implemented to mean that
the entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO,
and such does not violate the rule that tax exemptions
are personal because the manifest intention of the
agreement is to exempt the contractor so that no
contractor's tax may be shifted to the contractee WHO.
Thus, the proviso in P.D. 1869, extending the
exemption to entities or individuals dealing with
PAGCOR in casino operations, is clearly to proscribe
any indirect tax, like VAT, that may be shifted to
PAGCOR.
9. SILICON PHILIPPINES, INC., (Formerly INTEL
PHILIPPINES MANUFACTURING, INC.)
vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 172378 January 17, 2011
Applicable doctrines, principle or requisites:
Credit/refund of input VAT on zero-rated sales:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are
zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the
close of the taxable quarter when such sales were
made; and
4) the creditable input tax due or paid must be
attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been
applied against the output tax.
Credit/refund of input VAT on capital goods:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on
capital goods;
3. the input taxes must not have been applied against
any output tax liability; and
4. the administrative claim for refund must have been
filed within two (2) years after the close of the taxable
quarter when the importation or purchase was made.
Capital goods or properties - refer to goods or
properties with estimated useful life greater that one
year and which are treated as depreciable assets under
Section 29 (f),57 used directly or indirectly in the
production or sale of taxable goods or services.
Facts:
Petitioner Silicon Philippines, Inc., a corporation duly
organized and existing under and by virtue of the laws
of the Republic of the Philippines, is engaged in the
business of designing, developing, manufacturing and
exporting advance and large-scale integrated circuit
components or "IC’s." Petitioner is registered with the
Bureau of Internal Revenue (BIR) as a Value Added
Tax (VAT) taxpayer and with the Board of
Investments (BOI) as a preferred pioneer enterprise.
May 21, 1999, petitioner filed with the respondent
Commissioner of Internal Revenue (CIR) an application
for credit/refund of unutilized input VAT for the period
October 1, 1998 to December 31, 1998 in the amount
of ₱31,902,507.50. Due to the inaction of the
respondent, petitioner filed a Petition for Review with
the CTA Division
Division rendered a Decision partially granting
petitioner’s claim for refund of unutilized input VAT on
capital goods. Out of the amount of ₱15,170,082.00,
only ₱9,898,867.00 was allowed to be refunded
because training materials, office supplies, posters,
banners, T-shirts, books, and other similar items
purchased by petitioner were not considered capital
goods. With regard to petitioner’s claim for
credit/refund of input VAT attributable to its zero-rated
export sales, the CTA Division denied the same
because petitioner failed to present an Authority to
Print (ATP) from the BIR; neither did it print on its
export sales invoices the ATP and the word "zero-
rated.
Petitioner filed a Motion for Reconsideration contention
that it is not required to show its BIR permit number
on the sales invoices runs counter to the requirements
under the said "Permit." This court also wonders why
petitioner was issuing computer generated sales
invoices during the period involved (October 1998 to
December 1998) when it did not have an authority or
permit. Therefore, we are convinced that such
documents lack probative value and should be treated
as inadmissible, incompetent and immaterial to prove
petitioner’s export sales transaction.
Ruling of the CTA En Banc
The CTA En Banc issued the assailed Decision denying
the petition for lack of merit. This Court reiterates that,
the requirement of [printing] the BIR permit to print
on the face of the sales invoices and official receipts is
a control mechanism adopted by the Bureau of
Internal Revenue to safeguard the interest of the
government.
This requirement is clearly mandated under Section
238:
SEC. 238. Printing of Receipts or Sales or Commercial
Invoice. – All persons who are engaged in business
shall secure from the Bureau of Internal Revenue an
authority to print receipts or sales or commercial
invoices before a printer can print the same.
It is not enough that petitioner prove[s] that it is
entitled to its claim for refund by way of substantial
evidence.
Issue: W/N petitioner is required to show that it
secured an ATP from the BIR and to indicate the same
in its export sales invoices and to print the word "zero-
rated" in its export sales invoices to claim for refund?
Held: Yes, petitioner is required to show that it
secured an ATP from the BIR and to indicate the same
in its export sales invoices and to print the word "zero-
rated" in its export sales invoices to claim for refund
The ruling is divided in to two: 1)One is a credit/refund
of input VAT attributable to zero-rated sales under
Section 112 and 2) the other is a credit/refund of input
VAT on capital goods pursuant to Section 112 (B) of
the same Code.
1. Credit/refund of input VAT on zero-rated sales
a. Printing the ATP on the invoices or receipts is not
required what is required if proof of ATP from BIR.
It has been settled in Intel Technology Philippines, Inc.
v. Commissioner of Internal Revenue that the ATP
need not be reflected or indicated in the invoices or
receipts because there is no law or regulation requiring
it. In the absence of such law or regulation, failure to
print the ATP on the invoices or receipts should not
result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of
claiming a refund. However, while there is no law
requiring the ATP to be printed on the invoices or
receipts, Section 238 of the NIRC expressly requires
persons engaged in business to secure an ATP from
the BIR prior to printing invoices or receipts. Claimant
for unutilized input VAT on zero-rated sales is required
to present proof that it has secured an ATP from the
BIR prior to the printing of its invoices or receipts.
Since the ATP is not indicated in the invoices or
receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant
to present its ATP from the BIR. Without this proof, the
invoices or receipts would have no probative value for
the purpose of refund.
b. Failure to print the word "zero-rated" on the sales
invoices is fatal to a claim for refund of input VAT.
In Panasonic Communications Imaging Corporation of
the Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of
Internal Revenue, we upheld the denial of Panasonic’s
claim for tax credit/refund due to the absence of the
word "zero-rated" in its invoices. We explained that
compliance with Section 4.108-1 of RR 7-95, requiring
the printing of the word "zero rated" on the invoice
covering zero-rated sales, is essential as this
regulation proceeds from the rule-making authority of
the Secretary of Finance under Section 244 of the
NIRC.
All told, the non-presentation of the ATP and the
failure to indicate the word "zero-rated" in the invoices
or receipts are fatal to a claim for credit/refund of
input VAT on zero-rated sales. The failure to indicate
the ATP in the sales invoices or receipts, on the other
hand, is not. In this case, petitioner failed to present
its ATP and to print the word "zero-rated" on its export
sales invoices.
2. Credit/refund of input VAT on capital goods
pursuant to Section 112 (B) of the same Code.
We find no reason to deviate from the findings of the
CTA that training materials, office supplies, posters,
banners, T-shirts, books, and the other similar items
reflected in petitioner’s Summary of Importation of
Goods are not capital goods
Petition is denied
10. FORT BONIFACIO DEVELOPMENT
CORPORATION,
vs.
COMMISSIONER OF INTERNAL REVENUE and
REVENUE DISTRICT OFFICER, REVENUE
DISTRICT NO. 44, TAGUIG and PATEROS,
BUREAU OF INTERNAL REVENUE,
G.R. No. 173425 September 4, 2012
Facts:
In 1995, Fort Bonifacio Development Corporation
purchased from the national government a portion of
the Fort Bonifacio reservation. On January 1, 1996, the
enactment of RA 7716 extended the coverage of VAT
to real properties held primarily for sale to customers
or held for lease in the ordinary course of trade or
business. Thus, FBDC sought to register by submitting
to BIR an inventory of all its real properties, the book
value of which aggregated to about P71 B.
In October 1996, FBDC started selling Global City lots
to interested buyers. For the first quarter of 1997, it
paid the output VAT by making cash payments to the
BIR and credited its unutilized input tax credit on
purchases of goods and services. Realizing that its
8% transitional input tax credit was not applied in
computing its output VAT for the first quarter of 1997,
FBDC filed with the BIR a claim for refund of the
amount erroneously paid as output VAT for the said
period.
The CTA denied refund on the ground that “the benefit
of transitional input tax credit comes with the condition
that business taxes should have been paid first.” It
contends that since FBDC acquired the Global City
property under a VAT-free sale transaction, it cannot
avail of the transitional input tax credit. The CTA
likewise pointed out that under RR 7-95, implementing
Section 105 of the old NIRC, the 8% transitional input
tax credit should be based on the value of
the improvements on land such as buildings, roads,
drainage system and other similar structures,
constructed on or after January 1, 1998, and not on
the book value of the real property.
Issue 1: W/N prior payment of taxes is required in
availing of the transitional input tax credit
No. First, nothing in Sec 105 of the NIRC indicates that
prior payment of taxes is necessary to avail of the
transitional input tax credit. Clearly, all it requires is
for the taxpayer to file a beginning inventory with the
BIR. Courts cannot limit the application or coverage of
a law nor can it impose conditions not provided therein
because to do so constitutes judicial legislation.
Second, prior payment of taxes is not required to avail
of the transitional input tax credit because it is not a
tax refund per se but a tax credit. Tax credit is not
synonymous to tax refund. Tax refund is defined as the
money that a taxpayer overpaid and is thus returned
by the taxing authority. Tax credit, on the other hand,
is an amount subtracted directly from one’s total tax
liability. It is any amount given to a taxpayer as a
subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment
of taxes is not a prerequisite to avail of a tax credit.
Lastly, the fact that FBDC acquired the Global City
property under a tax-free transaction makes no
difference as prior payment of taxes is not a pre-
requisite.
Issue 2: W/N the transitional input tax credit applies
only to the value of improvements
No. Section 4.105-1 of RR 7-95, insofar as it limits the
transitional input tax credit to the value of
the improvement of the real properties, is a nullity.
The 8% transitional input tax credit should not be
limited to the value of the improvements on the real
properties but should include the value of the real
properties as well.
Hence, since FBDC is entitled to the 8% transitional
input tax credit which is more than sufficient to cover
its output tax for the first taxable quarter, the amount
of VAT output taxes erroneously paid must be
refunded.
Issue 3: W/N the Tax Code allows either a cash refund
or a tax credit for input VAT
Yes. First, a careful reading of Section 112 of the Tax
Code shows that it does not prohibit cash refund or tax
credit of transitional input tax in the case of zero-rated
or effectively zero-rated VAT registered taxpayers, who
do not have any output VAT.
The phrase “except transitional input tax” in Section
112 of the Tax Code was inserted to
distinguish creditable input tax from transitional input
tax credit. Transitional input tax credits are input taxes
on a taxpayer’s beginning inventory of goods,
materials, and supplies equivalent to 8% (then 2%) or
the actual VAT paid on such goods, materials and
supplies, whichever is higher. It may only be availed of
once by first-time VAT taxpayers. Creditable input
taxes, on the other hand, are input taxes of VAT
taxpayers in the course of their trade or business,
which should be applied within two years after the
close of the taxable quarter when the sales were
made.
As regards Section 110, while the law only provides for
a tax credit, a taxpayer who erroneously or excessively
pays his output taxis still entitled to recover the
payments he made either as a tax credit or a tax
refund.
Here, since FBDC still has available transitional input
tax credit, it filed a claim for refund to recover the
output VAT it erroneously or excessively paid for the
1st quarter of 1997. Thus, there is no reason for
denying its claim for tax refund/credit.
PERTINENT RRs, RMCs, Rulings
RR 16-2005, RR 4-2007,RR 16-2011
COVERAGE, NATURE, BASIS, AND RATE OF
VALUE-ADDED TAX (VAT)
SECTION 4.105-1. Persons Liable – Any person who,
in the course of his trade or business, sells, barters,
exchanges or leases goods or properties, or renders
services, and any person who imports goods, shall be
liable to VAT imposed in Secs. 106 to 108 of the Tax
Code.
However, in the case of importation of taxable goods,
the importer, whether an individual or corporation and
whether or not made in the course of his trade or
business, shall be liable to VAT imposed in Sec. 107 of
the Tax Code.
“Person” refers to any individual, trust, estate,
partnership, corporation, joint venture, cooperative or
association.
“Taxable person” refers to any person liable for the
payment of VAT, whether registered or registrable in
accordance with Sec. 236 of the Tax Code.
“VAT-registered person” refers to any person who is
registered as a VAT taxpayer under Sec. 236 of the
Tax Code. His status as a VAT-registered person shall
continue until the cancellation of such registration.
“Taxable sale” refers to the sale, barter, exchange
and/or lease of goods or properties, including
transactions “deemed sale” and the performance of
service for a consideration, whether in cash or in kind,
all of which are subject to tax under Secs. 106 and 108
of the Tax Code.
SEC. 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.
SEC. 4.105-3. 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.
SEC. 4.106-1. VAT on Sale of Goods or Properties
– VAT is imposed and collected on every sale, barter or
exchange, or transactions “deemed sale” of taxable
goods or properties at the rate of 12% of the gross
selling price or gross value in money of the goods or
properties sold, bartered, or exchanged, or deemed
sold in the Philippines.
SEC. 4.106-2. Meaning of the Term “Goods or
Properties” – The term “goods or properties” refers
to all tangible and intangible objects which are capable
of pecuniary estimation and shall include, among
others:
(1) Real properties held primarily for sale to customers
or held for lease in the ordinary course of trade or
business;
(2) 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;
(3) The right or the privilege to use any industrial
commercial or scientific equipment;
(4) The right or the privilege to use motion picture
films, films, tapes and discs; and
(5) Radio, television, satellite transmission and cable
television time.
SEC. 4.106-3. “Sale of Real Properties”. – Sale of
real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or
business of the seller shall be subject to VAT.
In the case of sale of real properties on the installment
plan, the real estate dealer shall be subject to VAT on
the installment payments, including interest and
penalties, actually and/or constructively received by
the seller.
Sale of residential lot exceeding P1, 919,500.00,
residential house and lot or other residential dwellings
exceeding P3, 199,200.00, where the instrument of
sale shall be subject to 12% VAT.
Installment sale of residential house and lot or other
residential dwellings exceeding P1, 919,500.00, where
the instrument of sale shall be subject to 12% VAT.
“Sale of real property on installment plan” means sale
of real property by a real estate dealer, the initial
payments of which in the year of sale do not exceed
twenty-five percent (25%) of the gross selling price.
In case of installment sale, the seller shall be subject
to output VAT on the installment payments received,
including the interests and penalties for late payment,
actually and/or constructively received, subject to the
provisions of Sec.4.106-4 hereof. Correspondingly, the
buyer of the property can claim the input tax in the
same period as the seller recognized the output tax.
Installment payments, including interests and
penalties, actually and/or constructively received
starting February 1, 2006 shall be subject to twelve
percent (12%) output VAT.
However, in the case of sale of real properties on the
deferred-payment basis, not on the installment plan,
the transaction shall be treated as cash sale which
makes the entire selling price taxable in month of sale.
“Sale of real property by a real estate dealer on a
deferred payment basis, not on the installment plan”
means sale of real property, the initial payments of
which in the year of sale exceed twenty-five percent
(25%) of the gross selling price.
“Initial payments” means payment or payments
which the seller receives before or upon execution of
the instrument of sale and payments which he expects
or is scheduled to receive in cash or property (other
than evidence of indebtedness of the purchaser) during
the year when the sale or disposition of the real
property was made. It covers any down payment made
and includes all payments actually or constructively
received during the year of sale, the aggregate of
which determines the limit set by law.
Initial payments do not include the amount of
mortgage on the real property sold except when such
mortgage exceeds the cost or other basis of the
property to the seller, in which case, the excess shall
be considered part of the initial payments.
Also excluded from initial payments are notes or other
evidence of indebtedness issued by the purchaser to
the seller at the time of the sale.
In the case of sale of real properties on a deferred-
payment basis not on the installment plan, the
transaction shall be treated as cash sale which makes
the entire selling price taxable in the month of sale.
Output tax shall be recognized by the seller and input
tax shall accrue to the buyer at the time of the
execution of the instrument of sale.
Payments subsequent to “initial payments” shall no
longer be subject to output VAT, in the case of sale on
a deferred payment basis.
Pre-selling of real estate properties by real estate
dealers shall be subject to VAT in accordance with
rules prescribed above.
“Real estate dealer” includes any person engaged in
the business of buying, developing, selling, exchanging
real properties as principal and holding himself out as
a full or part-time dealer in real estate.
Transmission of property to a trustee shall not be
subject to VAT if the property is to be merely held in
trust for the trustor and/or beneficiary. However, if the
property transferred is one for sale, lease or use in the
ordinary course of trade or business and the transfer
constitutes a completed gift, the transfer is subject to
VAT as a deemed sale transaction pursuant to Sec.
4.106-7(a)(1) of these Regulations. The transfer is a
completed gift if the transferor divests himself
absolutely of control over the property, i.e., irrevocable
transfer of corpus and/or irrevocable designation of
beneficiary.
SEC. 4.106-4. Meaning of the Term “Gross Selling
Price” – The term “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 VAT. The excise tax, if
any, on such goods or properties shall form part of the
gross selling price.
In the case of sale, barter or exchange of real property
subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the fair
market value whichever is higher. If the VAT is not
billed separately in the document of sale, the selling
price or the consideration stated therein shall be
deemed to be inclusive of VAT.
The term “fair market value” shall mean whichever is
the higher of:
1) the fair market value as determined by the
Commissioner (zonal value), or
2) the fair market value as shown in schedule of values
of the Provincial and City Assessors (real property tax
declaration). However, in the absence of zonal value,
gross selling price refers to the market value shown in
the latest real property tax declaration or the
consideration, whichever is higher. If the gross selling
price is based on the zonal value or market value of
the property, the zonal or market value shall be
deemed exclusive of VAT. Thus, the zonal
value/market value, net of the output VAT, should still
be higher than the consideration in the document of
sale, exclusive of the VAT.
If the sale of real property is on installment plan where
the zonal value/fair market value is higher than the
consideration/selling price, exclusive of the VAT, the
VAT shall be based on the ratio of actual collection of
the consideration, exclusive of the VAT, against the
agreed consideration, exclusive of the VAT, appearing
in the Contract to Sell/Contract of Sale applied to the
zonal value/fair market value of the property at the
time of the execution of the Contract to Sell/Contract
of Sale at the inception of the contract. Thus, since the
output VAT is based on the market value of the
property which is higher than the consideration/selling
price in the sales document, exclusive of the VAT, the
input VAT that can be claimed by the buyer shall be
the separately-billed output VAT in the sales document
issued by the seller. Therefore, the output VAT which is
based on the market value must be billed separately
by the seller in the sales document with specific
mention that the VAT billed separately is based on the
market value of the property.
Selling price is the amount of consideration in a
contract of sale between the buyer and seller or the
total price of the sale which may include cash or
property and evidence of indebtedness issued by the
buyer, excluding the VAT.
SEC. 4.106-5. Zero-Rated Sales of Goods or
Properties – A zero-rated sale of goods or properties
(by a VAT-registered person) is a taxable transaction
for VAT purposes, but shall not result in any output
tax. However, the input tax on purchases of goods,
properties or services, related to such zero-rated sale,
shall be available as tax credit or refund in accordance
with these Regulations.
The following sales by VAT-registered persons shall be
subject to zero percent (0%) rate:
(a) Export sales – “Export Sales” shall mean:
(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, 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) The sale of raw materials or packaging materials to
a non-resident 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, paid for in
acceptable foreign currency, and accounted for in
accordance with the rules and regulations of the BSP;
(3) The sale of raw materials or packaging materials to
an export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
Any enterprise whose export sales exceed 70% of the
total annual production of the preceding taxable year
shall be considered an export-oriented enterprise.
(4) Sale of gold to the BSP; and
(5) Transactions considered export sales under
Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special
laws.
“Considered export sales under Executive Order No.
226” shall mean the Philippine port F.O.B. value
determined from invoices, bills of lading, inward letters
of credit, landing certificates, and other commercial
documents, of export products exported directly by a
registered export producer, or the net selling price of
export products sold by a registered export producer
to another export producer, or to an export trader that
subsequently exports the same; Provided, That sales
of export products to another producer or to an export
trader shall only be deemed export sales when actually
exported by the latter, as evidenced by landing
certificates or similar commercial documents;
Provided, further, That pursuant to EO 226 and other
special laws, even without actual exportation, the
following shall be considered constructively exported:
(1) sales to bonded manufacturing warehouses of
export-oriented manufacturers; (2) sales to export
processing zones pursuant to Republic Act (RA) Nos.
7916, as amended, 7903, 7922 and other similar
export processing zones; (3) sale to enterprises duly
registered and accredited with the Subic Bay
Metropolitan Authority pursuant to RA 7227); (4) sales
to diplomatic missions and other agencies and/or
instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products
whether paid for in foreign currency or not.
For purposes of zero-rating, the export sales of
registered export traders shall include commission
income. The exportation of goods on consignment shall
not be deemed export sales until the export products
consigned are in fact sold by the consignee; and
Provided, finally, that sales of goods, properties or
services made by a VAT-registered supplier to a BOI-
registered manufacturer/producer whose products are
100% exported are considered export sales. A
certification to this effect must be issued by the Board
of Investment (BOI) which shall be good for one year
unless subsequently re-issued by the BOI.
(6) The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations; Provided, That
the same is limited to goods, supplies, equipment and
fuel pertaining to or attributable to the transport of
goods and passengers from a port in the Philippines
directly to a foreign port or vice versa, without
docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine
port is for the purpose of unloading passengers and/or
cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad;
Provided, further, that if any portion of such fuel,
goods or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel
goods and supplies shall be subject to twelve percent
(12%) output VAT.
(b) “Foreign Currency Denominated Sale”. – “Foreign
Currency Denominated Sale” means the sale to a non-
resident of goods, except those mentioned in Secs.
149 and 150 of the Tax Code, assembled or
manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance with
the rules and regulations of the BSP.
Sales of locally manufactured or assembled goods for
household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as
returning Overseas Filipinos under the Internal Export
Program of the government paid for in convertible
foreign currency and accounted for in accordance with
the rules and regulations of the BSP shall also be
considered export sales.
(c) “Sales to Persons or Entities Deemed Tax-exempt
under Special Law or International Agreement”. - Sales
of goods or property to persons or entities who are
tax-exempt under special laws, e.g. sales to
enterprises duly registered and accredited with the
Subic Bay Metropolitan Authority (SBMA) pursuant to
R.A. No. 7227, sales to enterprises duly registered and
accredited with the Philippine Economic Zone Authority
(PEZA) or international agreements to which the
Philippines is signatory, such as, Asian Development
Bank (ADB), International Rice Research Institute
(IRRI), etc., shall be effectively subject to VAT at zero-
rate.
SEC. 4.106-6. Meaning of the Term “Effectively
Zero-rated Sale of Goods and Properties” – The
term “effectively zero-rated sale of goods and
properties” shall refer to the local sale of goods and
properties by a VAT-registered person to a person or
entity who was granted indirect tax exemption under
special laws or international agreement. Under these
Regulations, transactions which, although not involving
actual export, are considered as “constructive export”
shall be entitled to the benefit of zero-rating, such as
local sales of goods and properties to persons or
entities covered under pars. (a) no. (3) - (sale to
export-oriented enterprises), (a) no. (6) - (sale of
goods, supplies, equipment and fuel to persons
engaged in international shipping or international air
transport operations), (b) (Foreign Currency
Denominated Sale) and (c) (Sales to Tax-Exempt
Persons or Entities) of the preceding section.
Except for Export Sale under Sec. 4.106-5(a) and
Foreign Currency Denominated Sale under Sec. 4.106-
5(b), other cases of zero-rated sales shall require prior
application with the appropriate BIR office for effective
zero-rating. Without an approved application for
effective zero-rating, the transaction otherwise entitled
to zero-rating shall be considered exempt. The
foregoing rule notwithstanding, the Commissioner may
prescribe such rules to effectively implement the
processing of applications for effective zero-rating.
SEC. 4.106-7. Transactions Deemed Sale. –
(a) The following transactions shall be “deemed sale”
pursuant to Sec. 106 (B) of the Tax Code:
(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. Transfer of
goods or properties not in the course of business can
take place when VAT-registered person withdraws
goods from his business for his personal use;
(2) Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-
registered person;
Property dividends which constitute stocks in trade or
properties primarily held for sale or lease declared out
of retained earnings on or after January 1, 1996 and
distributed by the company to its shareholders shall be
subject to VAT based on the zonal value or fair market
value at the time of distribution, whichever is
applicable.
ii. Creditors in payment of debt or obligation.
(3) Consignment of goods if actual sale is not made
within 60 days following the date such goods were
consigned. Consigned goods returned by the consignee
within the 60-day period are not deemed sold;
(4) Retirement from or cessation of business with
respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the
business is continued by the new owner or successor.
The following circumstances shall, among others, give
rise to transactions “deemed sale” for purposes of this
Section;
i. Change of ownership of the business. There is a
change in the ownership of the business when a single
proprietorship incorporates; or the proprietor of a
single proprietorship sells his entire business.
ii. Dissolution of a partnership and creation of a new
partnership which takes over the business.
(b) The Commissioner of Internal Revenue shall
determine the appropriate tax base in cases where a
transaction is deemed a sale, barter or exchange of
goods or properties under Sec. 4.106-7 paragraph (a)
hereof, or where the gross selling price is unreasonably
lower than the actual market value. The gross selling
price is unreasonably lower than the actual market
value if it is lower by more than 30% of the actual
market value of the same goods of the same quantity
and quality sold in the immediate locality on or nearest
the date of sale. Nonetheless, if one of the parties in
the transaction is the government as defined and
contemplated under the Administrative Code, the
output VAT on the transaction shall be based on the
actual selling price.
For transactions deemed sale, the output tax shall be
based on the market value of the goods deemed sold
as of the time of the occurrence of the transactions
enumerated in Sec. 4.106-7(a)(1),(2), and (3) of
these Regulations. However, in the case of retirement
or cessation of business, the tax base shall be the
acquisition cost or the current market price of the
goods or properties, whichever is lower.
In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the
actual market value shall be the tax base.
SEC. 4.106-8. Change or Cessation of Status as
VAT-registered Person. –
(a) Subject to output tax
The VAT provided for in Sec. 106 of the Tax Code shall
apply to goods or properties originally intended for sale
or use in business, and capital goods which are
existing as of the occurrence of the following:
(1) Change of business activity from VAT taxable
status to VAT-exempt status. An example is a VAT-
registered person engaged in a taxable activity like
wholesaler or retailer who decides to discontinue such
activity and engages instead in life insurance business
or in any other business not subject to VAT;
(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 a desire to revert to exempt status
after the lapse of three (3) consecutive years from the
time of registration by a person who voluntarily
registered despite being exempt under Sec. 109 (2) of
the Tax Code.
(4) Approval of a request for cancellation of
registration of one who commenced business with the
expectation of gross sales or receipts exceeding
P1,919,500.00, but who failed to exceed this amount
during the first twelve months of operation.
(b) Not subject to output tax
The VAT shall not apply to goods or properties existing
as of the occurrence of the following:
(1) Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group of
stockholders. The goods or properties used in business
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 the said
corporation.
(2) Change in the trade or corporate name of the
business;
(3) Merger or consolidation of corporations. The
unused input tax of the dissolved corporation, as of the
date of merger or consolidation, shall be absorbed by
the surviving or new corporation.
SEC. 4.106-9. Allowable Deductions from Gross
Selling Price – In computing the taxable base during
the month or quarter, the following shall be allowed as
deductions from gross selling price:
(a) Discounts determined and granted at the time of
sale, which are expressly indicated in the invoice, the
amount thereof forming part of the gross sales duly
recorded in the books of accounts.
Sales discount indicated in the invoice at the time of
sale, the grant of which is not dependent upon the
happening of a future event, may be excluded from the
gross sales within the same month/quarter it was
given.
(b) Sales returns and allowances for which a proper
credit or refund was made during the month or quarter
to the buyer for sales previously recorded as taxable
sales.
SEC. 4.107-1. VAT on Importation of Goods–
(a) In general. – VAT is imposed on goods brought into
the Philippines, whether for use in business or not. The
tax shall be based on the total value used by the BOC
in determining tariff and customs duties, plus customs
duties, excise tax, if any, and other charges, such as
postage, commission, and similar charges, prior to the
release of the goods from customs custody.
In case the valuation used by the BOC in computing
customs duties is based on volume or quantity of the
imported goods, the landed cost shall be the basis for
computing VAT.
Landed cost consists of the invoice amount, customs
duties, freight, insurance and other charges. If the
goods imported are subject to excise tax, the excise
tax shall form part of the tax base.
The 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.
No VAT shall be collected on importation of goods
which are specifically exempted under Sec. 109 (1) of
the Tax Code.
(b) Applicability and payment. – The rates prescribed
under Sec. 107 (A) of the Tax Code shall be applicable
to all importations withdrawn from customs custody.
The VAT on importation shall be paid by the importer
prior to the release of such goods from customs
custody.
“Importer” refers to any person who brings goods into
the Philippines, whether or not made in the course of
his trade or business. It includes non-exempt persons
or entities who acquire tax-free imported goods from
exempt persons, entities or agencies.
(c) Sale, transfer or exchange of imported goods by
tax-exempt persons. – In the case of goods imported
into the Philippines by VAT-exempt persons, entities or
agencies which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or
entities, the latter shall be considered the importers
thereof and shall be liable for VAT due on such
importation. The tax due on such importation shall
constitute a lien on the goods, superior to all
charges/or liens, irrespective of the possessor of said
goods.
SEC. 4.108-1. VAT on the Sale of Services and Use or
Lease of Properties. – Sale or exchange of services, as
well as the use or lease of properties, as defined in
Sec. 108 (A) of the Tax Code shall be subject to VAT,
equivalent to 12% of the gross receipts (excluding
VAT).
SEC. 4.108-2. Meaning of “Sale or Exchange of
Services” – The term “sale or exchange of services”
means the performance of all kind of services in the
Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including
those performed or rendered by the following:
(1) construction and service contractors;
(2) stock, real estate, commercial, customs and
immigration brokers;
(3) lessors of property, whether personal or real;
(4) persons engaged in warehousing services;
(5) lessors or distributors of cinematographic films;
(6) persons engaged in milling, processing,
manufacturing or repacking goods for others;
(7) proprietors, operators, or keepers of hotels,
motels, rest houses, pension houses, inns, resorts,
theaters, and movie houses;
(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 Philippines to another place in the
Philippines;
(13) sales of electricity by generation, transmission,
and/or distribution companies;
(14) franchise grantees of electric utilities, telephone
and telegraph, radio and/or television broadcasting
and all other franchise grantees, except 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), and
franchise grantees of gas and water utilities;
(15) non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity 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.
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 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) hereof or
any such knowledge or information as is mentioned in
subparagraph (3) hereof;
(5) The supply of services by a non-resident 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.
SEC. 4.108-3. Definitions and Specific Rules on
Selected Services. –
a. Lessors of Property. – All forms of property for
lease, whether real or personal, are liable to VAT
subject to the provisions of Sec. 4.109-1(B)(1)(v) of
these Regulations.
“Real estate lessor” includes any person engaged in
the business of leasing or subleasing real property.
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.
VAT on rental and/or royalties payable to non-resident
foreign corporations or owners for the sale of services
and use or lease of properties in the Philippines shall
be based on the contract price agreed upon by the
licensor and the licensee. The licensee shall be
responsible for the payment of VAT on such rentals
and/or royalties in behalf of the non-resident foreign
corporation or owner in the manner prescribed in Sec.
4.114-2(b) hereof.
“Non-resident lessor/owner” refers to any person,
natural or juridical, an alien, or a citizen who
establishes to the satisfaction of the Commissioner of
Internal Revenue the fact of his physical presence
abroad with a definite intention to reside therein, and
who owns/leases properties, real or personal, whether
tangible or intangible, located in the Philippines.
In a lease contract, the advance payment by the
lessee may be:
(i) a loan to the lessor from the lessee, or
(ii) an option money for the property, or
(iii) a security deposit to insure the faithful
performance of certain obligations of the lessee to the
lessor, or
(iv) pre-paid rental.
If the advance payment is actually a loan to the lessor,
or an option money for the property, or a security
deposit for the faithful performance of certain
obligations of the lessee, such advance payment is not
subject to VAT. However, a security deposit that is
applied to rental shall be subject to VAT at the time of
its application.
If the advance payment constitutes a pre-paid rental,
then such payment is taxable to the lessor in the
month when received, irrespective of the accounting
method employed by the lessor.
(b) “Warehousing service” means rendering personal
services of a warehouseman such as:
(1) engaging in the business of receiving and storing
goods of others for compensation or profit;
(2) receiving goods and merchandise to be stored in
his warehouse for hire; or
(3) keeping and storing goods for others, as a business
and for use.
(c) A miller, who is a person engaged in milling for
others (except palay into rice, corn into corn grits, and
sugarcane into raw sugar), is subject to VAT on sale of
services. If the miller is paid in cash for his services,
VAT shall be based on his gross receipts for the month
or quarter. If he receives a share of the milled
products instead of cash, VAT shall be based on the
actual market value of his share in the milled products.
Sale by the owner or the miller of his share of the
milled product (except rice, corn grits and raw sugar)
shall be subject to VAT.
(d) All receipts from service, hire, or operating lease of
transportation equipment not subject to the
percentage tax on domestic common carriers and
keepers of garages imposed under Sec. 117 of the Tax
Code shall be subject to VAT.
“Common carrier” refers to persons, corporations,
firms or associations engaged in the business of
carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their
services to the public and shall include transportation
contractors.
Common carriers by land with respect to their gross
receipts from the transport of passengers including
operators of taxicabs, utility cars for rent or hire driven
by the lessees (rent-a-car companies), and tourist
buses used for the transport of passengers shall be
subject to the percentage tax imposed under Sec. 117
of the Tax Code, but shall not be liable for VAT.
(e) Domestic common carriers by air and sea are
subject to 12% VAT on their gross receipts from their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines.
(f) Sale of electricity by generation, transmission, and
distribution companies shall be subject to 12% VAT on
their gross receipts; Provided, That sale of power or
fuel generated through renewable sources of energy
such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such as
fuel cells and hydrogen fuels shall be subject to 0%
VAT.
“Generation companies” refers to persons or
entities authorized by the Energy Regulatory
Commission (ERC) to operate facilities used in the
generation of electricity. For this purpose, generation
of electricity refers to the production of electricity by a
generation company or a co-generation facility
pursuant to the provisions of the RA No. 9136 (EPIRA).
They shall include all Independent Power Producers
(IPPs) and NPC/Power Sector Assets and Liabilities
Management Corporation (PSALM)-owned generation
facilities. “Transmission companies” refers to any
person or entity that owns and conveys electricity
through the high voltage backbone system and/or sub-
transmission assets, e.g. NPC or TRANSCO.
‘Subtransmission assets’ shall refer to the facilities
related to the power delivery service below the
transmission voltages and based on the functional
assignment of asset including, but not limited to step-
down transformers used solely by load customers,
associated switchyard/substation, control and
protective equipment, reactive compensation
equipment to improve power factor, overhead lines,
and the land where such facilities/equipments are
located. These include NPC assets linking the
transmission system and the distribution system which
are neither classified as generation or transmission.
“Distribution companies” refer to persons or entities
which operate a distribution system in accordance with
the provisions of the EPIRA. They shall include any
distribution utility such as an electric cooperative
organized pursuant to Presidential Decree No. 269, as
amended, and/or under RA No. 6938, or as otherwise
provided in the EPIRA, a private corporation, or a
government-owned utility or existing local government
unit which has an exclusive franchise to operate a
distribution system in accordance with the EPIRA.
For this purpose, a distribution system refers to the
system of wires and associated facilities belonging to a
franchised distribution utility extending between the
delivery points on the transmission or subtransmission
system or generator connection and the point of
connection to the premises of the end-users. “Gross
Receipts” under this Subsection (f) shall refer to the
following:
(a) Total amount charged by generation companies for
the sale of electricity and related ancillary services;
and/or
(b) Total amount charged by transmission companies
for transmission of electricity and related ancillary
services; and/or
(c) Total amount charged by distribution companies
and electric cooperatives for distribution and supply of
electricity, and related electric service. The universal
charge passed on and collected by distribution
companies and electric cooperatives shall be excluded
from the computation of the Gross Receipts.
(g) Dealers in securities and lending investors shall be
subject to VAT on the basis of their gross receipts.
However, for Dealer in Securities, the term “gross
receipts” means gross selling price less cost of the
securities sold..
“Dealer in securities” means a merchant of stock or
securities, whether an individual partnership or
corporation, with an established place of business,
regularly engaged in the purchase of securities and
their resale to customers, that is, one who as a
merchant buys securities and sells them to customers
with a view to the gains and profits that may be
derived therefrom.
Lending investor” includes all persons other than
banks, non-bank financial intermediaries, finance
companies and other financial intermediaries not
performing quasibanking functions who make a
practice of lending money for themselves or others at
interest.
(h) Services of franchise grantees of telephone and
telegraph, radio and/or television broadcasting, toll
road operations and all other franchise grantees,
except gas and water utilities, shall be subject to VAT
in lieu of franchise tax, pursuant to Sec. 20 of RA
No.7716, as amended. However, 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) shall not be subject to
VAT, but to the three percent (3%) franchise tax
imposed under Sec. 119 of the Tax Code, subject to
the optional registration provisions under Sec. 9.236-
1(c) hereof.
Likewise, franchise grantees of gas and water utilities
shall be subject to two percent (2%) franchise tax on
their gross receipts derived from the business covered
by the law granting the franchise pursuant to Sec. 119
of the Tax Code.
Gross receipts of all other franchisees, other than
those covered by Sec. 119 of the Tax Code, regardless
of how their franchises may have been granted, shall
be subject to the 12% VAT imposed under Sec. 108 of
the Tax Code. This includes among others, the
Philippine and Amusement Gaming Corporation
(PAGCOR), and its licensees or franchisees.
Franchise grantees of telephone and telegraph shall be
subject to VAT on their gross receipts derived from
their telephone, telegraph, telewriter exchange,
wireless and other communication equipment services.
However, amounts received for overseas dispatch,
message, or conversation originating from the
Philippines are subject to the percentage tax under
Sec. 120 of the Tax Code and hence exempt from VAT.
(i) Non-life insurance companies including surety,
fidelity, indemnity and bonding companies are subject
to VAT. They are not liable to the payment of the
premium tax under Sec. 123 of the Tax Code.
“Non-life insurance companies” including surety,
fidelity, indemnity and bonding companies, shall
include all individuals, partnerships, associations, or
corporations, including professional reinsurers defined
in Sec. 280 of PD 612, otherwise known as The
Insurance Code of the Philippines, mutual benefit
associations and government-owned or controlled
corporations, engaging in the business of property
insurance, as distinguished from insurance on human
lives, health, accident and insurance appertaining
thereto or connected therewith which shall be subject
to the percentage tax under Sec. 123 of the Tax Code.
The gross receipts from non-life insurance shall mean
total premiums collected, whether paid in money,
notes, credits or any substitute for money.
Non-life insurance premiums are subject to VAT
whereas non-life reinsurance premiums are not subject
to VAT, the latter being already subjected to VAT upon
receipt of the insurance premiums. Insurance and
reinsurance commissions, whether life of non-life, are
subject to VAT.
VAT due from the foreign reinsurance company is to be
withheld by the local insurance company and to be
remitted to the BIR in accordance with Sec. 4.114-
2(b)(2) hereof by filing the Monthly Remittance Return
of Value-Added Tax Withheld (BIR Form 1600).
(j) Pre-need Companies are corporations registered
with the Securities and Exchange Commission and
authorized/licensed to sell or offer for sale pre-need
plans, whether a single plan or multi-plan. They are
engaged in business as seller of services providing
services to plan holders by managing the funds
provided by them and making payments at the time of
need or maturity of the contract.
As service providers, the compensation for their
services is the premiums or payments received from
the plan holders.
(k) Health Maintenance Organizations (HMOs) are
entities, organized in accordance with the provisions of
the Corporation Code of the Philippines and licensed by
the appropriate government agency, which arranges
for coverage or designated managed care services
needed by plan holders/members for fixed prepaid
membership fees and for a specified period of time.
HMO’s gross receipts shall be the total amount of
money or its equivalent representing the service fee
actually or constructively received during the taxable
period for the services performed or to be performed
for another person, excluding the value-added tax.
The compensation for their services representing their
service fee, is presumed to be the total amount
received as enrollment fee from their members plus
other charges received.
SEC. 4.108-4. Definition of Gross Receipts. -“Gross
receipts” refers to the total amount of money or its
equivalent representing the contract price,
compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the
services and deposits applied as payments for services
rendered and advance payments actually or
constructively received during the taxable period for
the services performed or to be performed for another
person, excluding VAT. except those amounts
earmarked for payment to unrelated third (3rd ) party
or received as reimbursement for advance payment on
behalf of another which do not redound to the benefit
of the payor. A payment is a payment to a third (3rd)
party if the same is made to settle an obligation of
another person, e.g., customer or client, to the said
third party, which obligation is evidenced by the sales
invoice/official receipt issued by said third party to the
obligor/debtor (e.g., customer or client of the payor of
the obligation).
An advance payment is an advance payment on behalf
of another if the same is paid to a third (3rd) party for
a present or future obligation of said another party
which obligation is evidenced by a sales invoice/official
receipt issued by the obligee/creditor to the
obligor/debtor (i.e., the aforementioned “another
party”) for the sale of goods or services by the former
to the latter.
For this purpose ‘unrelated party’ shall not include
taxpayer’s employees, partners, affiliates (parent,
subsidiary and other related companies), relatives by
consanguinity or affinity within the fourth (4th) civil
degree, and trust fund where the taxpayer is the
trustor, trustee or beneficiary, even if covered by an
agreement to the contrary.
“Constructive receipt” occurs when the money
consideration or its equivalent is placed at the control
of the person who rendered the service without
restrictions by the payor. The following are examples
of constructive receipts:
(1) deposit in banks which are made available to the
seller of services without restrictions;
(2) issuance by the debtor of a notice to offset any
debt or obligation and acceptance thereof by the seller
as payment for services rendered; and
(3) transfer of the amounts retained by the payor to
the account of the contractor.
SEC. 4.108-5. Zero-Rated Sale of Services. -
(a) In general. - A zero-rated sale of service (by a
VAT-registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax.
However, the input tax on purchases of goods,
properties or services related to such zero-rated sale
shall be available as tax credit or refund in accordance
with these Regulations.
(b) Transactions Subject to Zero Percent (0%) VAT
Rate. - The following services performed in the
Philippines by a VAT-registered person shall be subject
to zero percent (0%) VAT rate:
(1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines,
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the BSP;
(2) Services other than processing, manufacturing or
repacking 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, the
consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the
rules and regulations of the BSP;
(3) Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate;
(4) Services rendered to persons engaged in
international shipping or air transport operations,
including leases of property for use thereof; Provided,
however, that the services referred to herein shall not
pertain to those made to 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, the same being subject to
12% VAT under Sec. 108 of the Tax Code;
(5) Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose export
sales exceed seventy percent (70%) of the total
annual production;
(6) Transport of passengers and cargo by domestic air
or sea carriers from the Philippines to a foreign
country. Gross receipts of international air carriers
doing business in the Philippines and international sea
carriers doing business in the Philippines are still liable
to a percentage tax of three percent (3%) based on
their gross receipts as provided for in Sec. 118 of the
Tax Code but shall not to be liable to VAT; and
(7) Sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal and steam, ocean
energy, and other emerging sources using technologies
such as fuel cells and hydrogen fuels; Provided,
however, that zero-rating shall apply strictly to the
sale of power or fuel generated through renewable
sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of
plants generating said power.
SEC. 4.108-6. Effectively Zero-Rated Sale of
Services. The term “effectively zerorated sales of
services” shall refer to the local sale of services by a
VAT-registered person to a person or entity who was
granted indirect tax exemption under special laws or
international agreement. Under these Regulations,
effectively zero-rated sale of services shall be limited
to local sales to persons or entities that enjoy
exemptions from indirect taxes under subparagraph
(b) nos. (3), (4) and (5) of this Section. The concerned
taxpayer must seek prior approval or prior
confirmation from the appropriate offices of the BIR so
that a transaction is qualified for effective zero-rating.
Without an approved application for effective zero-
rating, the transaction otherwise entitled to zero-rating
shall be considered exempt. The foregoing rule
notwithstanding, the Commissioner may prescribe such
rules to effectively implement the processing of
applications for effective zero-rating.
SEC. 4.109-1. VAT-Exempt Transactions. –
(A) In general. – “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 the said transaction is not
subject to VAT.
(B) Exempt transactions. –
(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from VAT:
(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.
Livestock shall include cows, bulls and calves, pigs,
sheep, goats and rabbits. Poultry shall include fowls,
ducks, geese and turkey. Livestock or poultry does not
include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Marine food products shall include fish and
crustaceans, such as, but not limited to, eels, trout,
lobster, shrimps, prawns, oysters, mussels and clams.
Meat, fruit, fish, vegetables and other agricultural and
marine food products classified under this paragraph
shall be considered in their original date even if they
have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping,
including those using advanced technological means of
packaging, such as shrink wrapping in plastics, vacuum
packing, tetra-pack, and other similar packaging
methods.
Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be
considered as agricultural food products in their
original state.
Sugar whose content of sucrose by weight, in the dry
state, has a polarimeter reading of 99.5 o and above
are presumed to be refined sugar.
Cane sugar produced from the following shall be
presumed, for internal revenue purposes, to be refined
sugar:
(1) product of a refining process,
(2) products of a sugar refinery, or
(3) product of a production line of a sugar mill
accredited by the BIR to be producing and/or capable
of producing sugar with polarimeter reading of 99.5o
and above, and for which the quedan issued therefor,
and verified by the Sugar Regulatory Administration,
identifies the same to be of a polarimeter reading of
99.5o and above.
Bagasse is not included in the exemption provided for
under this section.
(b) Sale or importation of fertilizers, seeds, seedlings
and fingerlings, fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced
or imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets);
“Specialty feeds” refers 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 residents of the Philippines returning from
abroad and non-resident citizens coming to resettle in
the Philippines; Provided, that such goods are exempt
from customs duties under the Tariff and Customs
Code of the Philippines;
(d) Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines
and that the change of residence is bonafide;
(e) Services subject to percentage tax under Title V of
the Tax Code, as enumerated below:
(1) Sale or lease of goods or properties or the
performance of services of non-VATregistered persons,
other than the transactions mentioned in paragraphs
(A) to (U) of Sec. 109(1) of the Tax Code, the gross
annual sales and/or receipts of which does not exceed
the amount of P1,919,500.00; Provided, That not later
than January 31, 2009 and 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 National Statistics Office (NSO)
(Sec. 116 of the Tax Code);
(2) Services rendered by domestic common carriers by
land, for the transport of passengers and keepers of
garages (Sec. 117);
(3) Services rendered by international air / shipping
carriers (Sec. 118);
(4) Services rendered by 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), and by franchise
grantees of gas and water utilities (Sec. 119);
(5) Service rendered for overseas dispatch, message
or conversation originating from the Philippines (Sec.
120);
(6) Services rendered by any person, company or
corporation (except purely cooperative companies or
associations) doing life insurance business of any sort
in the Philippines (Sec. 123);
(7) Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies (Sec.
124);
(8) Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-Alai and
race tracks (Sec. 125); and
(9) Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock
exchange or through initial public offering (Sec. 127).
(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” refers to those persons
producing for others poultry, livestock or other
agricultural and marine food products in their original
state.
(g) Medical, dental, hospital and veterinary services,
except those rendered by professionals.
Laboratory services are exempted. If the hospital or
clinic operates a pharmacy or drug store, the sale of
drugs and medicine is subject to VAT.
(h) Educational services rendered by private
educational institutions duly accredited by the
Department of Education (DepED), the Commission on
Higher Education (CHED) and the Technical Education
and Skills Development Authority (TESDA) and those
rendered by government educational institutions;
“Educational services” shall refer to academic,
technical or vocational education provided by private
educational institutions duly accredited by the DepED,
the CHED and TESDA and those rendered by
government educational institutions and it does not
include seminars, in-service training, review classes
and other similar services rendered by persons who
are not accredited by the DepED, the CHED and/or the
TESDA;
(i) Services rendered by individuals pursuant to an
employer-employee relationship;
(j) Services rendered by regional or area headquarters
established in the Philippines by multinational
corporations which act as supervisory, communications
and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region and
do not earn or derive income from the Philippines;
(k) Transactions which are exempt under international
agreements to which the Philippines is a signatory or
under special laws except those granted under PD No.
529 — Petroleum Exploration Concessionaires under
the Petroleum Act of 1949; and
(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 their produce, whether in its original
state or processed form, to non-members; their
importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or
processing of their produce.
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 (e.g., trader), then
only those sales to its members shall be exempted
from VAT; It is to be reiterated however, that sale or
importation of agricultural food products in their
original state is exempt from VAT irrespective of the
seller and buyer thereof, pursuant to Subsection (a)
hereof;
(m) Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority,
(n) Sales by non-agricultural, non-electric and non-
credit cooperatives duly registered with and in good
standing with the CDA; Provided, That the share
capital contribution of each member does not exceed
Fifteen Thousand Pesos (P15,000.00) and regardless of
the aggregate capital and net surplus ratably
distributed among the members.
Importation by non-agricultural, non-electric and non-
credit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are
subject to VAT.
(o) Export sales by persons who are not VAT-
registered;
(p) The following sales of real properties are exempt
from VAT, namely:
(1) Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of
trade or business.
However, even if the real property is not primarily held
for sale to customers or held for lease in the ordinary
course of trade or business but the same is used in the
trade or business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental to the
taxpayer’s main business.
(2) Sale of real properties utilized for low-cost housing
as defined by RA No. 7279, otherwise known as the
“Urban Development and Housing Act of 1992” and
other related laws, such as RA No. 7835 and RA No.
8763.
“Low-cost housing” refers to housing projects intended
for homeless low-income family beneficiaries,
undertaken by the Government or private developers,
which may either be a subdivision or a condominium
registered and licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under BP Blg. 220,
PD No. 957 or any other similar law, wherein the unit
selling price is within the selling price ceiling per unit of
P750,000.00 under RA No. 7279, otherwise known as
the “Urban Development and Housing Act of 1992” and
other laws, such as RA No. 7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized
housing as defined under RA No. 7279, and other
related laws, such as RA No. 7835 and RA No. 8763,
wherein the price ceiling per unit is P450,000.00 or as
may from time to time be determined by the HUDCC
and the NEDA and other related laws.
“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, otherwise known as the
“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 non-government organizations.
(4) Sale of residential lot valued at P1, 919, 500.00
and below, or house & lot and other residential
dwellings valued at P3, 199, 200 and below; Provided,
That not later than January 31, 2009 and every three
(3) years thereafter, the amounts stated herein shall
be adjusted to its present value using the Consumer
Price Index, as published by the National Statistics
Office (NSO); Provided, further, that such adjustment
shall be published through revenue regulations to be
issued not later than March 31 of each year;
If two or more adjacent residential lots are sold or
disposed in favor of one buyer, for the purpose of
utilizing the lots as one residential lot, the sale shall be
exempt from VAT only if the aggregate value of the
lots do not exceed P1, 919,500.00. Adjacent
residential lots, although covered by separate titles
and/or separate tax declarations, when sold or
disposed to one and the same buyer, whether covered
by one or separate Deed of Conveyance, shall be
presumed as a sale of one residential lot.
(q) Lease of residential units with a monthly rental per
unit not exceeding P12, 800.00, regardless of the
amount of aggregate rentals received by the lessor
during the year
The foregoing notwithstanding, lease of residential
units where the monthly rental per unit exceeds
P12,800.00, but the aggregate of such rentals of the
lessor during the year do not exceed P1,919,500.00
shall likewise be exempt from VAT, however, the same
shall be subjected to three percent (3%) percentage
tax.
In cases where a lessor has several residential units
for lease, some are leased out for a monthly rental per
unit of not exceeding P12, 800.00 while others are
leased out for more than P12, 800.00 per unit, his tax
liability will be as follows:
1. The gross receipts from rentals not exceeding P12,
800.00 per month per unit shall be exempt from VAT
regardless of the aggregate annual gross receipts.
2. The gross receipts from rentals exceeding P12,
800.00 per month per unit shall be subject to VAT if
the aggregate annual gross receipts from said units
only (not including the gross receipts from units leased
for not more than P12, 800.00 exceeds P1, 919,500.00
Otherwise, the gross receipts will be subject to the 3%
tax imposed under Section 116 of the Tax Code.
The term ‘residential units’ shall refer to apartments
and houses & lots used for residential purposes, and
buildings or parts or units thereof used solely as
dwelling places (e.g., dormitories, rooms and bed
spaces) except motels, motel rooms, hotels and hotel
rooms, lodging houses, inns and pension houses.
The term ‘unit’ shall mean an apartment unit in the
case of apartments, house in the case of residential
houses; per person in the case of dormitories,
boarding houses and bed spaces; and per room in case
of rooms for rent.
(r) Sale, importation, printing or publication of books
and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements;
(s) Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international
transport operations;
Provided, that the exemption from VAT on the
importation and local purchase of passenger and/or
cargo vessels shall be limited to those of one hundred
fifty (150) tons and above, including engine and spare
parts of said vessels; Provided, further, that the
vessels to be imported shall comply with the age limit
requirement, at the time of acquisition counted from
the date of the vessel’s original commissioning, as
follows: (i) for passenger and/or cargo vessels, the age
limit is fifteen (15) years old, (ii) for tankers, the age
limit is ten (10) years old, and (iii) For high-speed
passenger crafts, the age limit is five (5) years old;
Provided, finally, that exemption shall be subject to the
provisions of Section 4 of Republic Act No. 9295,
otherwise known as “The Domestic Shipping
Development Act of 2004”;
(t) Importation of life-saving equipment, safety and
rescue equipment and communication and navigational
safety equipment, steel plates and other metal plates
including marine-grade aluminum plates, used for
shipping transport operations; Provided, that the
exemption shall be subject to the provisions of Section
4 of Republic Act. No. 9295, otherwise known as ‘The
Domestic Shipping Development Act of 2004’;
(u) Importation of capital equipment, machinery, spare
parts, lifesaving and navigational equipment, steel
plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair,
renovation or alteration of any merchant marine vessel
operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the
provisions of Section 19 of Republic Act. No. 9295,
otherwise known as ‘The Domestic Shipping
Development Act of 2004’
(v) Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations; Provided, that the said fuel, goods and
supplies shall be used exclusively or shall pertain to
the transport of goods and/or passenger from a port in
the Philippines directly to a foreign port without
stopping at any other port in the Philippines or vice
versa, without docking or stopping at any other port in
the Philippines unless the docking or stopping at any
other Philippine port is for the purpose of unloading
passengers and/or cargoes that originated from
abroad, or to load passengers and/or cargoes bound
for abroad;
Provided, further, that if any portion of such fuel,
goods or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT;
(w) Services of banks, non-bank financial
intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries, such as
money changers and pawnshops subject to percentage
tax under Secs. 121 and 122 of the Tax Code, such as
money changers and pawnshops; and
(x) 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 P1, 919,500.00;
For purposes of the threshold of P1, 919,500.00, the
husband and the wife shall be considered separate
taxpayers. However, the aggregation rule for each
taxpayer shall apply.
For instance, if a professional, aside from the practice
of his profession, also derives revenue from other lines
of business which are otherwise subject to VAT, the
same shall be combined for purposes of determining
whether the threshold has been exceeded. Thus, the
VAT-exempt sales shall not be included in determining
the threshold.
SEC. 4.109-2 A VAT-registered person may, in relation
to Sec. 9.236-1(c) of these Regulations, elect that the
exemption in Subsection (1) hereof shall not apply to
his sales of goods or properties or services. Once the
election is made, it shall be irrevocable for a period of
three (3) years counted from the quarter when the
election was made except for franchise grantees of
radio and TV broadcasting whose annual gross receipts
for the preceding year do not exceed ten million pesos
(P10,000,000.00) where the option becomes
perpetually irrevocable .
SEC. 4.110-1. Credits For Input Tax. -- “Input tax”
means the VAT due on 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, in the course of his trade or business.
It shall also include the transitional input tax and the
presumptive input tax determined in accordance with
Sec. 111 of the Tax Code.
It includes input taxes which can be directly attributed
to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly
attributed to either the taxable or exempt activity.
Any input tax on the following transactions evidenced
by a VAT invoice or official receipt issued by a VAT-
registered person in accordance with Secs. 113 and
237 of the Tax Code shall be creditable against the
output tax:
(a) Purchase or importation of goods
(1) For sale; or
(2) For conversion into or intended to form part of a
finished product for sale, including packaging
materials; or
(3) For use as supplies in the course of business; or
(4) For use as raw materials supplied in the sale of
services; or
(5) For use in trade or business for which deduction for
depreciation or amortization is allowed under the Tax
Code,
(b) Purchase of real properties for which a VAT has
actually been paid;
(c) Purchase of services in which a VAT has actually
been paid;
(d) Transactions “deemed sale” under Sec. 106 (B) of
the Tax Code;
(e) Transitional input tax allowed under Sec. 4.111 (a)
of these Regulations;
(f) Presumptive input tax allowed under Sec. 4.111 (b)
of these Regulations;
(g) Transitional input tax credits allowed under the
transitory and other provisions of these Regulations.
SEC. 4.110-2. Persons Who Can Avail of the Input Tax
Credit. -- The input tax credit on importation of goods
or local purchases of goods, properties or services by a
VATregistered person shall be creditable:
(a) To the importer upon payment of VAT prior to the
release of goods from customs custody;
(b) To the purchaser of the domestic goods or
properties upon consummation of the sale; or
(c) To the purchaser of services or the lessee or
licensee upon payment of the compensation, rental,
royalty or fee.
SEC. 4.110-3. Claim for Input Tax on Depreciable
Goods. -- Where a VATregistered person purchases or
imports capital goods, which are depreciable assets for
income tax purposes, the aggregate acquisition cost of
which (exclusive of VAT) in a calendar month exceeds
One Million pesos (P1,000,000.00), regardless of the
acquisition cost of each capital good, shall be claimed
as credit against output tax in the following manner:
(a) If the estimated useful life of a capital good is five
(5) years or more – The input tax shall be spread
evenly over a period of sixty (60) months and the
claim for input tax credit will commence in the
calendar month when the capital good is acquired. The
total input taxes on purchases or importations of this
type of capital goods shall be divided by 60 and the
quotient will be the amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less
than five (5) years – The input tax shall be spread
evenly on a monthly basis by dividing the input tax by
the actual number of months comprising the estimated
useful life of the capital good. The claim for input tax
credit shall commence in the calendar month that the
capital goods were acquired.
Where the aggregate acquisition cost (exclusive of
VAT) of the existing or finished depreciable capital
goods purchased or imported during any calendar
month does not exceed One million pesos (P
1,000,000.00), the total input taxes will be allowable
as credit against output tax in the month of
acquisition; Provided, however, that the total amount
of input taxes (input tax on depreciable capital goods
plus other allowable input taxes) allowed to be claimed
against the output tax in the quarterly VAT Returns
shall be subject to the limitation prescribed under Sec.
4.110-7 of these Regulations.
Capital goods or properties refers to goods or
properties with estimated useful life greater than one
(1) year and which are treated as depreciable assets
under Sec. 34(F) of the Tax Code, used directly or
indirectly in the production or sale of taxable goods or
services. The aggregate acquisition cost of depreciable
assets in any calendar month refers to the total price,
excluding the VAT, agreed upon for one or more assets
acquired and not on the payments actually made
during the calendar month. Thus, an asset acquired on
installment for an acquisition cost of more than
P1,000,000.00, excluding the VAT, will be subject to
the amortization of input tax despite the fact that the
monthly payments/installments may not exceed
P1,000,000.00.
Construction in progress (CIP) is the cost of
construction work which is not yet completed. CIP is
not depreciated until the asset is placed in service.
Normally, upon completion, a CIP item is reclassified
and the reclassified asset is capitalized and
depreciated. CIP is considered, for purposes of
claiming input tax, as a purchase of service, the value
of which shall be determined based on the progress
billings. Until such time the construction has been
completed, it will not qualify as capital goods as herein
defined, in which case, input tax credit on such
transaction can be recognized in the month the
payment was made; Provided, that an official receipt
of payment has been issued based on the progress
billings.
In case of contract for the sale of service where only
the labor will be supplied by the contractor and the
materials will be purchased by the contractee from
other suppliers, input tax credit on the labor
contracted shall still be recognized on the month the
payment was made based on a progress billings while
input tax on the purchase of materials shall be
recognized at the time the materials were purchased.
Once the input tax has already been claimed while the
construction is still in progress, no additional input tax
can be claimed upon completion of the asset when it
has been reclassified as a depreciable capital asset and
depreciated.”
If the depreciable capital good is sold/transferred
within a period of five (5) years or prior to the
exhaustion of the amortizable input tax thereon, the
entire unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit
during the month/quarter when the sale or transfer
was made but subject to the limitation prescribed
under Sec. 4.110-7 of these Regulations.
SEC. 4.110-4. Apportionment of Input Tax on
Mixed Transactions. -- A VAT-registered person who
is also engaged in transactions not subject to VAT shall
be allowed to recognize input tax credit on transactions
subject to VAT as follows:
1. All the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for
input tax credit; Provided, that input taxes that can be
directly attributable to VAT taxable sales of goods and
services to the Government or any of its political
subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs)
shall not be credited against output taxes arising from
sales to non-Government entities
Claims for VAT refund/Tax Credit Certificate (TCC) with
the Bureau of Internal Revenue, Board of Investment,
and One-Stop-Shop and Duty Drawback Center of the
Dept. of Finance should be deducted from the
allowable input tax that are attributable to zero-rated
sales.
2. If any input tax cannot be directly attributed to
either a VAT taxable or VATexempt transaction, the
input tax shall be pro-rated to the VAT taxable and
VAT-exempt transactions and only the ratable portion
pertaining to transactions subject to VAT may be
recognized for input tax credit.
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.
Notwithstanding the foregoing provisions, for persons
engaged in both zero-rated sales under Sec. 108(B)(6)
of the Tax Code and non-zero rated sales, the
aggregate input taxes shall be allocated ratably
between the zero-rated sale and non-zero-rated sale.
SEC. 4.110-5. Determination of Input Tax
Creditable during a Taxable Month or Quarter. --
The amount of input taxes creditable during a month
or quarter shall be determined in the manner
illustrated above by adding all creditable input taxes
arising from the transactions enumerated under the
preceding subsections of Sec. 4.110 during the month
or quarter plus any amount of input tax carried-over
from the preceding month or quarter, reduced by the
amount of claim for VAT refund or tax credit certificate
(whether filed with the BIR, the Department of
Finance, the Board of Investments or the BOC) and
other adjustments, such as purchases returns or
allowances, input tax attributable to exempt sales and
input tax attributable to sales subject to final VAT
withholding.
SEC. 4.110-6. Determination of the Output Tax
and VAT Payable and Computation of VAT
Payable or Excess Tax Credits. -- In a sale of goods
or properties, the output tax is computed by
multiplying the gross selling price as defined in these
Regulations by the regular rate of VAT. For sellers of
services, the output tax is computed by multiplying the
gross receipts as defined in these Regulations by the
regular rate of VAT.
In all cases where the basis for computing the output
tax is either the gross selling price or the gross
receipts, but the amount of 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 VAT.
Hence, the output tax shall be computed by
multiplying the total invoice amount by a fraction using
the rate of VAT as numerator and one hundred percent
(100%) plus rate of VAT as the denominator.
Accordingly, the input tax that can be claimed by the
buyer shall be the corrected amount of VAT computed
in accordance with the formula herein prescribed.
There shall be allowed as a deduction from the output
tax the amount of input tax deductible as determined
under Sec. 4.110-1 to 4.110-5 of these Regulations to
arrive at VAT payable on the monthly VAT declaration
and the quarterly VAT returns, subject to the
limitations set forth in Section 4.110-7.
SEC. 4.110-7. VAT Payable (Excess Output)t or Excess
Input Tax.
(a) 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.
SEC. 4.110-8. Substantiation of Input Tax Credits. --
(a) Input taxes for the importation of goods or the
domestic purchase of goods, properties or services is
made in the course of trade or business, whether such
input taxes shall be credited against zero-rated sale,
non-zero-rated sales, or subjected to the 5% Final
Withholding VAT, must be substantiated and supported
by the following documents, and must be reported in
the information returns required to be submitted to the
Bureau:
(1) For the importation of goods - import entry or
other equivalent document showing actual payment of
VAT on the imported goods.
(2) For the domestic purchase of goods and properties
– invoice showing the information required under Secs.
113 and 237 of the Tax Code.
(3) For the purchase of real property – public
instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell, etc.,
together with VAT invoice issued by the seller.
(4) For the purchase of services – official receipt
showing the information required under Secs. 113 and
237 of the Tax Code.
A cash register machine tape issued to a registered
buyer shall constitute valid proof of substantiation of
tax credit only if it shows the information required
under Secs. 113 and 237 of the Tax Code.
(b) Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list to be
submitted to the BIR.
(c) Input tax on “deemed sale” transactions shall be
substantiated with the invoice required under Sec.
4.113-2 of these Regulations.
(d) Input tax from payments made to non-residents
(such as for services, rentals and royalties) shall be
supported by a copy of the Monthly Remittance Return
of Value Added Tax Withheld (BIR Form 1600) filed by
the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld
by the payor.
(e) Advance VAT on sugar shall be supported by the
Payment Order showing payment of the advance VAT.
SEC. 4.111-1. Transitional/Presumptive Input Tax
Credits.--
(a) Transitional Input Tax Credits on Beginning
Inventories Taxpayers who became VAT-registered
persons upon exceeding the minimum turnover of P1,
919,500.00 in any 12-month period, or who voluntarily
register even if their turnover does not exceed P1,
919,500.00 (except franchise grantees of radio and
television broadcasting whose threshold is
P10,000,000.00) shall be 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.
The transitional input tax shall be two percent (2%) of
the value of the beginning inventory on hand or actual
VAT paid on such, goods, materials and supplies,
whichever is higher, which amount shall be creditable
against the output tax of VAT-registered person.
The value allowed for income tax purposes on
inventories shall be the basis for the computation of
the 2% transitional input tax, excluding goods that are
exempt from VAT under Sec. 109 of the Tax Code.
(b) Presumptive Input Tax Credits
Persons or firms engaged in the processing of sardines,
mackerel, and milk, and in manufacturing refined
sugar, 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 paragraph, 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.
SEC. 4.112-1. Claims for Refund/Tax Credit Certificate
of Input Tax. --
(a) Zero-rated and Effectively Zero-rated Sales of
Goods, Properties or Services A VAT-registered person
whose sales of goods, properties or services are zero-
rated or effectively zero-rated may apply for the
issuance of a tax credit certificate/refund of input tax
attributable to such sales. The input tax that may be
subject of the claim shall exclude the portion of input
tax that has been applied against the output tax. The
application should be filed within two (2) years after
the close of the taxable quarter when such sales were
made.
In case of zero-rated sales under Secs.
106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and
Sec. 108(B)(1) and (2) of the Tax Code, the payments
for the sales must have been made in acceptable
foreign currency duly accounted for in accordance with
the BSP rules and regulations.
Where the taxpayer is engaged in both zero-rated or
effectively zero-rated sales and in taxable (including
sales subject to final withholding VAT) or exempt sales
of goods, 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, only
the proportionate share of input taxes allocated to
zero-rated or effectively zero-rated sales can be
claimed for refund or issuance of a tax credit
certificate.
In the case of a person engaged in the transport of
passenger and cargo by air or sea vessels from the
Philippines to a foreign country, the input taxes shall
be allocated ratably between his zero-rated sales and
non-zero-rated sales (sales subject to regular rate,
subject to final VAT withholding and VAT-exempt
sales).
(b) Cancellation of VAT registration
A VAT-registered person whose registration has been
cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status
under Sec. 106 (C) of the Tax 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 he may use in payment of his other internal
revenue taxes; Provided, however, that he shall be
entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may
be utilized.
(c) Where to file the claim for refund/tax credit
certificate
Claims for refunds/tax credit certificate shall be filed
with the appropriate BIR office (Large Taxpayers
Service (LTS) or Revenue District Office (RDO)) having
jurisdiction over the principal place of business of the
taxpayer; Provided, however, that direct exporters
may also file their claim for tax credit certificate with
the One Stop Shop Center of the Department of
Finance; Provided, finally, that the filing of the claim
with one office shall preclude the filing of the same
claim with another office.
(d) Period within which refund or tax credit
certificate/refund of input taxes shall be made In
proper cases, the Commissioner of Internal Revenue
shall grant a tax credit certificate/refund for creditable
input taxes within one hundred twenty (120) days
from the date of submission of complete documents in
support of the application filed in accordance with
subparagraph (a) above.
In case of full or partial denial of the claim for tax
credit certificate/refund as decided by the
Commissioner of Internal Revenue, the taxpayer may
appeal to the Court of Tax Appeals (CTA) within thirty
(30) days from the receipt of said denial, otherwise the
decision shall become final. However, if no action on
the claim for tax credit certificate/refund has been
taken by the Commissioner of Internal Revenue after
the one hundred twenty (120) day period from the
date of submission of the application with complete
documents, the taxpayer may appeal to the CTA within
30 days from the lapse of the 120-day period.
(e) Manner of giving refund
Refund shall be made upon warrants drawn by the
Commissioner of Internal Revenue or by his duly
authorized representative without the necessity of
being countersigned by the Chairman, Commission on
Audit (COA), the provision of the Revised
Administrative Code to the contrary notwithstanding;
Provided, that refunds under this paragraph shall be
subject to post audit by the COA.
SEC. 4.113-1. Invoicing Requirements. --
(A) A VAT-registered person shall issue: --
(1) A VAT invoice for every sale, barter or exchange of
goods or properties; and
(2) A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange of
services.
Only VAT-registered persons are required to print their
TIN followed by the word “VAT” in their invoice or
official receipts. Said documents shall be considered as
a “VAT Invoice”
or VAT official receipt. All purchases covered by
invoices/receipts other than VAT Invoice/VAT Official
Receipt shall not give rise to any input tax.
VAT invoice /official receipt shall be prepared at least
in duplicate, the original to be given to the buyer and
the duplicate to be retained by the seller as part of his
accounting records.
(B) Information contained in VAT invoice or VAT official
receipt. – The following information shall be indicated
in VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered
person, followed by his TIN;
(2) The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the VAT; Provided, That:
(a) The amount of tax shall be shown as a separate
item in the invoice or receipt;
(b) If the sale is exempt from VAT, the term “VAT-
exempt sale” shall be written or printed prominently on
the invoice or receipt;
(c) If the sale is subject to zero percent (0%) VAT, the
term “zero-rated sale” shall be written or printed
prominently on the invoice or receipt;
(d) If the sale involves goods, properties or services
some of which are subject to and some of which are
VAT zero-rated or VAT-exempt, the invoice or receipt
shall clearly indicate the break-down of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or
receipt. The seller has the option to issue separate
invoices or receipts for the taxable, exempt, and zero-
rated components of the sale.
(3) In the case of sales in the amount of one thousand
pesos (P1,000.00) or more where the sale or transfer
is made to a VAT-registered person, the name,
business style, if any, address and TIN of the
purchaser, customer or client, shall be indicated in
addition to the information required in (1) and (2) of
this Section.
SEC. 4.113-2. Invoicing and Recording Deemed Sale
Transactions.-- In the case of Sec. 4.106-7(a) (1) of
these Regulations, a memorandum entry in the
subsidiary sales journal to record withdrawal of goods
for personal use is required. In the case of Sec. 4.106-
7(a) (2) and (3) of these Regulations, an invoice shall
be prepared at the time of the occurrence of the
transaction, which should include, all the information
prescribed in Sec. 4.113-1. The data appearing in the
invoice shall be duly recorded in the subsidiary sales
journal. The total amount of “deemed sale” shall be
included in the return to be filed for the month or
quarter.
In the case of Sec. 4.106-7(a) (4) an inventory shall
be prepared and submitted to the RDO who has
jurisdiction over the taxpayer’s principal place of
business not later than 30 days after retirement or
cessation from business.
An invoice shall be prepared for the entire inventory,
which shall be the basis of the entry into the subsidiary
sales journal. The invoice need not enumerate the
specific items appearing in the inventory, but it must
show the total amount. It is sufficient to just make a
reference to the inventory regarding the description of
the goods. However, the sales invoice number should
be indicated in the inventory filed and a copy thereof
shall form part of this invoice. If the business is to be
continued by the new owners or successors, the entire
amount of output tax on the amount deemed sold shall
be allowed as input taxes. If the business is to be
liquidated and the goods in the inventory are sold or
disposed of to VAT-registered buyers, an invoice or
instrument of sale or transfer shall to prepared citing
the invoice number wherein the tax was imposed on
the deemed sale. At the same time the tax paid
corresponding to the goods sold should be separately
indicated in the instrument of sale.
SEC. 4.113-3. Accounting Requirements.
Notwithstanding the provisions of Sec. 233, all persons
subject to VAT under Sec. 106 and 108 of the Tax
Code shall, in addition to the regular accounting
records required, maintain a subsidiary sales journal
and subsidiary purchase journal on which every sale or
purchase on any given day is recorded. The subsidiary
journal shall contain such information as may be
required by the Commissioner of Internal Revenue.
A subsidiary record in ledger form shall be maintained
for the acquisition, purchase or importation of
depreciable assets or capital goods which shall contain,
among others, information on the total input tax
thereon as well as the monthly input tax claimed in
VAT declaration or return.
SEC. 4. 113-4. Consequences of Issuing Erroneous
VAT Invoice or VAT Official Receipt. --
(A) Issuance of a VAT Invoice or VAT Receipt by a non-
VAT person. – If a person who is not VAT-registered
issues an invoice or receipt showing his TIN, followed
by the word “VAT”, the erroneous issuance shall result
to the following:
(1) The non-VAT person shall be liable to:
(i) the percentage taxes applicable to his transactions;
(ii) VAT due on the transactions under Sec. 106 or 108
of the Tax Code, without the benefit of any input tax
credit; and
(iii) a 50% surcharge under Sec. 248 (B) of the Tax
Code;
(2) VAT shall be recognized as an input tax credit to
the purchaser under Sec. 110 of the Tax Code,
provided the requisite information required under
Subsection 4.113 (B) of these Regulations is shown on
the invoice or receipt.
(B) Issuance of a VAT Invoice or VAT Receipt on an
Exempt Transaction by a VAT-registered Person – If a
VAT-registered person issues a VAT invoice or VAT
official receipt for a VAT-exempt transaction, but fails
to display prominently on the invoice or receipt the
words “VAT-exempt sale”, the transaction shall
become taxable and the issuer shall be liable to pay
VAT thereon. The purchaser shall be entitled to claim
an input tax credit on his purchase.
SEC. 4.113-5. Transitional Period. – Notwithstanding
Sec. 4.113-1 (B) hereof, taxpayers may continue to
issue VAT invoices and VAT official receipts for the
period July 1, 2005 to December 31, 2005, in
accordance with BIR administrative practices that
existed as of December 31, 2004 but subject to the
Transitory and Other Provisions of these Regulations
SEC. 4.114-1. Filing of Return and Payment of VAT. --
(A) Filing of Return. – Every person liable to pay VAT
shall file a quarterly return of the amount of his
quarterly gross sales or receipts within twenty five
(25) days following the close of taxable quarter using
the latest version of Quarterly VAT Return.
The term “taxable quarter” shall mean the quarter that
is synchronized to the income tax quarter of the
taxpayer (i.e., the calendar quarter or fiscal quarter).
Amounts reflected in the monthly VAT declarations for
the first two (2) months of the quarter shall still be
included in the quarterly VAT return which reflects the
cumulative figures for the taxable quarter. Payments in
the monthly VAT declarations shall, however, be
credited in the quarterly VAT return to arrive at the net
VAT payable or excess input tax/over-payment as of
the end of a quarter.
SEC. 4.114-2. Withholding of VAT on Government
Money Payments and Payments to Non-Residents. –
(a) 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/or of services taxed at 12% VAT pursuant to Secs.
106 and 108 of the Tax Code, deduct and withhold a
final VAT due at the rate of five percent (5%) of the
gross payment thereof.
The five percent (5%) final VAT withholding rate shall
-- represent the net VAT payable of the seller. The
remaining seven percent (7%) effectively accounts for
the standard input VAT for sales of goods or services
to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu
of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT
exceed seven percent (7%) of gross payments, the
excess may form part of the sellers’ expense or cost.
On the other hand, if actual input VAT is less than 7%
of gross payment, the difference must be closed to
expense or cost.
(b) The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, as well
as private corporations, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold
twelve percent (12%) VAT with respect to the following
payments:
(1) Lease or use of properties or property rights owned
by non-residents;
(2) Services rendered to local insurance companies,
with respect to reinsurance premiums payable to non-
residents; and
(3) Other services rendered in the Philippines by non-
residents. In remitting VAT withheld, the withholding
agent shall use BIR Form No. 1600 - Remittance
Return of VAT and Other Percentage Taxes Withheld.
VAT withheld and paid for the non-resident recipient
(remitted using BIR Form No. 1600), which VAT is
passed on to the resident withholding agent by the
non-resident recipient of the income, may be claimed
as input tax by said VAT-registered withholding agent
upon filing his own VAT Return, subject to the rule on
allocation of input tax among taxable sales, zero-rated
sales and exempt sales. The duly filed BIR Form No.
1600 is the proof or documentary substantiation for
the claimed input tax or input VAT.
Nonetheless, if the resident withholding agent is a non-
VAT taxpayer, said passed-on VAT by the non-resident
recipient of the income, evidenced by the duly filed BIR
Form No. 1600, shall form part of the cost of
purchased services, which may be treated either as an
"asset" or "expense", whichever is applicable, of the
resident withholding agent.
VAT withheld under this Section shall be remitted
within ten (10) days following the end of the month
the withholding was made.
RMC 39-2007
Only the agency fee in the Security agency is subject
to VAT.
RMC 34-2008, RMC 77-2008
The compensation, honoraria, allowances and alike of
the director who is not an employee is not subject to
VAT since it does not fall within the meaning of in the
course of trade or business.
RMC 6-2009
HMOs are subject to VAT and the basis for computing
the VAT shall be the membership fees received from
the members undiminished by any amount paid or
payable to owners/operators of hospitals, clinics and
medical and dental practitioners.
RR 16-2013
The obligations to the BIR of exhibitor or
organizer are the following:
a. Obligation to post in a conspicuous place the
Certificate of Registration of the organizer issued by
the BIR
b. Obligation to deduct and withhold Expanded
Withholding Tax on lease payments to the lessor of
real property
c. Obligation to provide the Revenue District Office
(RDO) with the list of names, residence addresses,
stall, slot or unit number in the privilege store outlet,
location site of the privilege store outlet, individual
Taxpayer Identification Number (TIN) of
persons/entities participating in the event or exhibit
and the specific dates and duration when such
operations shall be conducted
d. Obligation to ensure compliance of lessees/tenants
to the following: presentation of
TIN and Official Receipts/Sales or Commercial Invoice;
submission of Information Statement on Privilege
Store Activities indicating the duration (total number of
days) of business operations and presentation of proof
of payment of actual withholding tax due on its income
payment
e. Obligation to keep Books of Accounts and issue
receipts
f. Obligation to provide Cash Register Machines/Point-
of-Sale (CRM/POS) Machines for each privilege store
operator, or centralized CRM/POS/Payment Centers, or
allow the use of its own manual Official Receipts/Sales
or Commercial Invoices for the exclusive use by its
Privilege Store Operators to monitor the sales of the
latter
g. Obligation to ensure the submission of List of Sales
within 5 days after the privilege store operation
h. Obligation to report to the BIR non-compliance by
the privilege store operators/lessees with their
obligations and responsibilities
The obligations to the BIR of privilege store
operators are the following:
a. Obligation to deduct and withhold the Expanded
Withholding Tax on rental payments to
exhibitor/organizer for sub-leased spaces or
lessor/owner of leased property
b. Obligation to file Income Tax returns
c. Obligation to submit Information Statement on
Privilege Store Activities
d. Obligation to keep Books of Accounts and issue
receipts/sales or commercial invoices
e. Obligation to submit List of Sales on Privilege Store
Activities to the exhibitor/organizer
The obligations to the BIR of lessees/tenants not
classified as “Privilege Store Operators” (regular
taxpayers) are the following:
a. Obligation to deduct and withhold the Expanded
Withholding Tax on rental payments to
exhibitor/organizer for sub-leased spaces or
lessor/owner of leased property
b. Obligation to keep Books of Accounts and issue
receipts/sales or commercial invoices
c. Obligation to file Income, Withholding, Business
(Percentage or Value- Added) and other tax returns,
and pay the correct amount of taxes
d. Obligation to file other information returns
A privilege store operator whose business operation/s
is more than 15 days ceases to be as such and shall
thenceforth be governed by existing revenue laws and
regulations applicable to regular taxpayers.
The RDOs shall be primarily responsible in monitoring
compliance by the organizer/exhibitor of his/its
obligations imposed herein and the activities of any
privilege store operating within their respective
jurisdictions, as well as in validating the list furnished
by the exhibitor/organizer with respect to such
information regarding the identity of the participants,
the number of participants and the duration of the
exhibit. The validation of the participants, as reported
by the exhibitor/organizer, shall be made through the
BIR’s existing registration system.
Based on the list provided by the exhibitor/organizer,
the RDO shall recommend the issuance by the
Regional Director of Mission Order/s directing the
deployment of Revenue Officers (ROs) who shall be in-
charged of physically checking compliance by the
exhibitor/organizer, privilege store operators and
regular taxpayers with their obligations as enumerated
above, particularly the filing of tax returns (i.e. Income
Tax returns, Percentage or Value-Added Tax returns,
etc.).
RMC. 55-2014
Sec.4.109-1- VAT Exempt Transactions.-
xxxxxx
(B) Exempt transactions. –
(1) Subject to the provisions of Sec. 4.109-2 hereof,
the following transactions shall be exempt from VAT:
xxxx
(b) Sale or importation of fertilizers, seeds, seedlings
and fingerlings, fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced
or imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets)
“Specialty feeds” refers to non-agricultural feeds or
food for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as
pets
The above provision exempts from VAT the sale or
importation of livestock and poultry feeds or
ingredients used in the manufacture of finished feeds.
It has been noted, however, that some ingredients of
finished feeds may also be used for the production of
food for human consumption.
B. REQUIREMENT FOR EXEMPTION
To give effect to the legislative intent that only
livestock and poultry feeds or ingredients used in the
manufacture of finished feeds are exempted from VAT,
it is hereby clarified that the sale or importation of
ingredients which may also be used for the production
of food for human consumption shall be subject to
VAT. Thus, for the sale or importation of livestock and
poultry feeds or ingredients used in the manufacture of
finished feeds to be exempt from VAT, there must be a
showing that the same is unfit for human consumption
or that the ingredient cannot be used for the
production of food for human consumption as certified
by the Food and Drug Administration (FDA).
RMC 7-2014
Marginal Income Earner is an individual not deriving
compensation as an employee under an employer-
employee relationship but who is self-employed and
deriving gross sales or receipts not exceeding P
100,000 in any 12-month period. Moreover, the
activities of MIE should be principally for subsistence or
livelihood.
The MIE shall include but not limited to agricultural
growers/producers (farmers/fishermen) selling directly
to ultimate consumers, small sari-sari stores, small
carinderias or “turo-turos”, drivers/operators of a
single unit tricycle, and such, but shall not include
licensed professionals, consultants, artists, sales
agents, brokers and others similarly situated, including
all others whose income have been subjected to
withholding tax.
The incidence of being a MIE, as required under RR No.
7-2012, covers the following privileges and minimum
registration and tax compliance requirements:
a. Registration with the BIR using BIR Form 1901 with
the following minimal documentary requirements:
i. Sworn Statement of Income for the year;
and
ii. National Statistics Office Certified or Local Civil
Registry Birth Certificate;
b. Exemption from the payment of Annual Registration
Fee;
c. Registration of Books of Accounts (e.g. two-column
journal or other simplified books for daily expenses
and revenues);
d. Issuance of registered principal receipts/sales
invoices as prescribed under Revenue Memorandum
Order No. 12-2013;
e. Filing and payment of Annual Income Tax Return
using BIR Form 1701 similar to any other self-
employed individuals; and
f. Exemption from payment of business taxes (i.e.
Value-Added Tax or any Percentage Tax).
The BIR District Office, upon evaluation of application
for registration, shall issue the Certificate of
Registration and shall likewise ensure compliance with
the registration of books of accounts and issuance of
Authority To Print for their Principal Receipts/Sales
Invoices.
RMC 55-2013
The most common types of online business
transactions in the Philippines are the following:
a. Online Shopping or Online Retailing
b. Online Intermediary Service
c. Online Advertisement/Classified Ads
d. Online Auction
Like any other business establishments, persons who
conduct business through online transactions and its
permutations have the following obligations:
a) Register the business at the Revenue District
Office (RDO) having jurisdiction over the
principal place of business/head office (or
residence in case of individuals) by
accomplishing BIR Form 1901 (for individuals)
or 1903 (for corporations or partnerships) and
paying the registration fee to any Authorized
Agent Bank (AAB) located within the RDO.
b) Secure Authority to Print (ATP)
invoices/receipts and register books of
accounts for use in business, which may either
be: a) manual books of accounts, booklets of
invoices/receipts, accounting records or loose-
leaf of such; or b) Computerized
Accounting System and/or its components
including e-Invoicing System.
c) Issue registered invoice or receipt, either
manually or electronically, for every sale,
barter, exchange or lease of goods and
properties, as well as for every sale, barter, or
exchange of service, following the information
requirements prescribed under existing
revenue issuances.
d) Withhold required creditable/expanded
withholding tax, final tax, tax on compensation
of employees and other withholding taxes and
remit the same to the BIR at the time or times
required, and issue to the concerned payees
the necessary Certificate of Tax Withheld.
e) File applicable tax returns on or before the
due dates, pay correct internal revenue taxes
and submit information returns and other tax
compliance reports such as the Summary List
of Sales/Purchases, Annual Alpha List of
Payees, etc., at the time or times required by
existing rules and regulations; and
f) Keep books of accounts and other
business/accounting records within the time
prescribed by law, which should be made
available anytime for inspection and
verification by duly authorized Revenue
Officer/s for the purpose of ascertaining
compliance with tax rules and regulations.
The existing tax laws and revenue issuances on the tax
treatment of purchases (local or imported) and sale
(local or international) of goods (tangible or intangible)
or services shall be equally applied with no distinction
on whether or not the marketing channel is the
internet/digital media or the typical and customary
physical medium.
The specific obligations and duties/basic compliance of
parties to different types of online transactions
(whether payment is thru credit card companies, thru
banks, or cash on delivery or in the office of merchant)
are specified in the Circular.
Any person engaged in internet commerce who fails to
comply with applicable tax laws, rules and regulations
shall be subject to the imposition of penalties provided
for under the existing laws, rules and regulations, in
addition to the imposition of penalties pursuant to the
applicable Section/s under Chapters II and IV, Title X
of the National Internal Revenue Code of 1997, as
amended.
RMC 75-2012
In order to be exempted from VAT, a newspaper,
magazine, review or bulletin must be:
(i) printed or published at regular intervals; (ii)
available for subscription and sale at fixed prices;
and (iii) are not principally devoted to the publication
of paid advertisements.
The terms “book”, “newspaper”, “magazine”, “review”
and ”bulletin”, as used in the said provision, refer to
printed materials in hard copies. They do not include
those in digital or electronic format or computerized
versions, including but not limited to e-books, e-
journals, electronic copies, online library sources, CDs
and software.
RMC 65-2012
For tax purposes, the association dues, membership
fees and other assessment/charges collected by a
condominium corporation constitute income payments
or compensation for the beneficial services it provides
to its members and tenants.
Accordingly, the gross receipts of condominium
corporations including association dues, membership
fees and other assessments/charges are subject to
VAT and Income Tax, and income payments made to it
are subject to applicable withholding taxes under
existing regulations.
RMC 64-2012
Apart from applicable Income Taxes and Withholding
Taxes, a professional is liable to Value-Added Tax
(VAT) at the rate of 12% if his gross
receipts/professional fees for the past 12 months is
more than P1,919,500.00. A professional is likewise
liable to register as a VAT-taxpayer if there are
reasonable grounds to believe that his gross
receipts/professional fees for the next 12 months will
exceed P1,919,500.00. If he fails to register, he shall
be liable to pay the 12% output tax under Section 108
of the 1997 Tax Code, as amended, 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.
A professional is liable to Percentage Tax at the rate
of 3% if his gross receipts/professional fees for the
past 12 months is equal to or is below P1,919,500.00
and he is not a VAT-registered person.
If the professional registers as a VAT-person, he shall
be liable to VAT upon registration as VAT taxpayer and
not to Percentage Tax, irrespective of the amount of
his gross receipts/professional fees. A professional who
is not required to register for VAT may elect to be VAT-
registered but he shall not be allowed to cancel such
registration for the next 3 years counted from the
quarter when the election was made.
RR 13-2012
"Section 4.106-3 Sale of Real Properties. - Sale of real
properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business of
the seller shall be subject to VAT.
xxxxxxxxx
This includes sale, transfer or disposal within a 12-
month period of two or more adjacent residential lots,
house and lots or other residential dwellings in favor of
one buyer from the same seller, for the purpose of
utilizing the lots, house and lots or other residential
dwellings as one residential area wherein the
aggregate value of the adjacent properties exceeds P
1,919,500.00, for residential lots and P 3,199,200.00
for residential house and lots or other residential
dwellings. Adjacent residential lots, house and lots or
other residential dwellings although covered by
separate titles and/or separate tax declarations, when
sold or disposed to one and the same buyer, whether
covered by one or separate Deed/s of Conveyance,
shall be presumed as a sale of one residential lot,
house and lot or residential dwelling.
This however, does not include the sale of parking lot
which may or may not be included in the sale of
condominium units. The sale of parking lots in a
condominium is a separate and distinct transaction and
is not covered by the rules on threshold amount not
being a residential lot, house & lot or a residential
dwelling, thus, should be subject to VAT regardless of
amount of selling price.”
RMC 35-2012
The income of recreational clubs from whatever
source, including but not limited to membership fees,
assessment dues, rental income and service fees are
subject to Income Tax.
Any person regardless of whether or not the person
engaged therein is a non-stock, nonprofit private
organization or government entity” is liable to pay
Value-Added Tax (VAT) on the sale of goods or
services. The gross receipts of recreational clubs
including but not limited to membership fees,
assessment dues, rental income, and service fees are
subject to VAT
RR 7-2012
issued on April 2, 2012 amends the consolidated
Revenue Regulations on primary registration, updates
and cancellation, particularly on the following:
a. Registration, updates and cancellation procedures;
b. Venue, Forms & Documentary Requirements;
c. Annual Registration Fee;
d. Certification Fee; and
e. Penalties for registration-related violations.
The venue, forms and documentary requirements for
the registration of each type of applicant-taxpayer are
listed in Annex “A” of the Regulations. Application for
Taxpayer Identification Number (TIN) with incomplete
documentary requirements shall not be processed.
The TIN, once assigned to a particular taxpayer, is
non-transferable and there shall be no instance where
two or several taxpayers are holders of the same TIN.
Only one TIN shall be assigned to the taxpayer,
regardless of variety of transactions e.g. employee
who is at the same time engaged in business. Once
assigned with a TIN, a taxpayer is precluded from
applying for another TIN, except for banks with both
Regular Banking Unit and with Foreign Currency
Deposit Unit where each unit is assigned with different
TINs. Any person who shall secure more than one TIN
shall be subject to the penalty prescribed under
Section 15 of the Regulations.
The estate of a deceased person or a trust under an
irrevocable trust agreement shall be issued a TIN
separate and distinct from the TIN of the deceased
person and/or trustee.
Minors who are earning and/or who are under the
circumstances prescribed under Executive Order (EO)
No. 98, series of 1998 shall be supplied with TIN.
Non-Resident Aliens Not Engaged in Trade or Business
(NRANETB) or Non-Resident Foreign Corporations
(NRFC) shall be issued TINs for purposes of
withholding taxes on their income from sources within
the Philippines. The withholding agent shall apply for
the TIN in behalf of the NRANETB or NRFC prior to or
at the time of the filing of their monthly Withholding
Tax Return as applicant under EO 98, Series of 1998.
Branches of identified Large Taxpayer shall be
registered at the Large Taxpayers Service (LTS) where
the Head Office (HO) is registered. All incorporators of
corporations/associations (stock and non-stock),
partners of partnerships and members of cooperatives
must have TINs.
While the application and issuance of TIN is generally
made through the concerned BIR district office, the
same, upon certain circumstances provided for by
existing rules and regulations, may be obtained either
through the e-REG facility in the BIR website, or
through the Security and Exchange Commission or
through other facilities/agencies as may be made
available in the future.
Applicants whose TINs have been secured through the
e-REG facility shall complete their registration with the
BIR district office (e.g. persons to engage in
business/practice of profession), but shall no longer be
required to fill out the forms for “Application for
Registration”. Instead, a printout of the “System
Confirmation Page” and the filled out on-line “BIR Form
1901”, which is the proof of e-TIN registration, shall be
submitted to the concerned BIR district office, together
with the prescribed documentary requirements.
In the case of corporations/partnerships (including
GOCCs), which upon registration with the SEC has
already been assigned with a TIN, the “Application for
Registration” (BIR Form 1903) shall be completed and
submitted to the BIR district office which has
jurisdiction over its principal place of business. The
articles of incorporation, together with the SEC
Registration Certificate where the TIN is indicated, as
well as proof of authority given to its representative
must be submitted to the concerned BIR district office
during the completion of registration of its business.
The submission of a Mayor’s Permit prior to
registration is mandatory. Provided, however, that if it
is still in process with the concerned Local Government
Unit (LGU), a duly stamped “Received” application for
Mayor’s Permit will temporarily suffice to qualify him/
her/ it for registration, provided, further that a duly
approved permit shall be submitted within 30 calendar
days from date of registration. Failure to submit the
same shall subject the taxpayer to Tax Compliance
Verification Drive/ocular inspection to be conducted by
the BIR district office.
Consequently, if upon validation it can be determined
that the business is non-existent and fails to file
regularly the tax returns/declarations for his/her/its
registered tax types, the BIR district officeshall
observe the procedures on tagging of the taxpayer’s
status as “Inactive”.
Business taxpayers and those required to issue
receipts, shall submit the following requirements to
complete their registration:
a. Application for Authority to Print (ATP)
Receipts/Invoices;
b. Registration of Manual Books of Accounts; or
c. Application for Permit to use Computerized
Accounting System (CAS) or components thereof, if
applicable;
d. Application for Permit to use Loose Leaf Accounting
Records, if applicable;
e. Application for Permit to use Cash Register Machine
(CRM)/Point of Sales (POS)
Machines, and the like, if applicable;
f. Permit to Operate for taxpayers engaged in
activities/transactions involving products subject to
excise taxes.
As a general rule, it shall be mandatory for the BIR
district office to process and issue simultaneously the
Certificate of Registration (COR), ATP and register the
books of accounts of business taxpayers immediately
after registration and upon complete submission of the
requirements within the period prescribed under the
existing process provided by the BIR Citizen’s Charter.
The BIR district office must ensure that taxpayers will
be issued their registration certificates/permits (COR,
ATP, Books of Accounts) upon commencement of their
business.
Issuance of TIN Card for the first time shall be free of
charge subject to the provisions of Section 15 of the
Regulations. The same must be processed and
released to the applicant within the same day upon
submission to the BIR district office of complete
documentary requirements after the cut-off period of
1:00 p.m. TIN Cards shall be automatically issued to
registered taxpayers except those TINs issued under
EO 98, series of 1998/ONETT wherein issuance of the
TIN card is optional and only upon request to the BIR
district office where the taxpayer is registered.
For eREG applicants who are employees or those
registered under EO 98 whose TIN are generated by
Employers/Authorized Users, the “System Confirmation
Page” and filled out online BIR Form 1902/BIR Form
1904T shall be presented to the concerned BIR district
office for the issuance of the TIN card. The concerned
BIR district office shall only issue the TIN card upon
submission of the documents prescribed in Annex "A"
of the Regulations
The cost of processing of the initial TIN Card shall not
be charged and collected from the applicant.
Subsequent requests for the issuance of TIN Card due
to loss or damage shall be charged with a fee
amounting to P100.00, subject to change upon
evaluation and approval of the Commissioner of
Internal Revenue (CIR), to cover cost of reprinting.
Applications for TIN Card of registered taxpayers can
be made at any computerized BIR district office
regardless of registered address of applicant.
Individuals engaged in business or practice of
profession and juridical entities, unless otherwise
exempted, shall:
a. Pay Annual Registration Fee (ARF), if applicable;
b. Secure COR;
c. Proceed to Secondary Registration;
d. Get “Ask for Receipt” notice, if applicable; and
e. Attend the taxpayer’s initial briefing to be conducted
by the BIR district office for new registrants in order to
apprise them of their rights and duties/responsibilities.
In lieu of the briefing, the BIR district office may
distribute information materials on registration to its
new applicants in CD format to be developed by the
Taxpayer Assistance Service.
Every person subject to any internal revenue tax to be
filed/paid periodically shall complete its registration
with the BIR as follows:
a. For self-employed individuals, estates and trusts,
corporations and their branches, if any
– on or before the commencement of business
b. For corporations (Taxable or Non-taxable)/ONETT –
before payment of any tax due
c. For partnerships, associations, cooperatives,
Government Agencies and Instrumentalities
(GAIs) – before or upon filing of any applicable tax
return, statement or declaration as
required by the Code, as amended
d. For employees or individuals who are registering
with the BIR for the first time by
reason of employment – within 10 days from date of
employment
e. For individuals required to secure TIN for their
transactions with government agencies (applications
under EO 98, series of 1998) – they shall apply for
their TIN from any BIR district office (thru the eREG
System) at any time before they complete their
transaction with the government agency
The COR shall only be issued to individuals engaged in
business or practice of profession and to juridical
persons (whether taxable or exempt) by the BIR
district office concerned (i.e., BIR district office of
HO/Branch/Facility) upon compliance with the
requirements for registration. Issuance of COR,
whether upon registration or upon update of taxpayer’s
information, is not subject to payment of Certification
Fee unless the taxpayer requested for a certified copy
of said COR, in which case, the same shall be subject
to the payment of Certification Fee.
Employees, ONETT taxpayers, and/or persons who
have secured a TIN under EO 98, series of 1998 with
the BIR shall not be issued a COR. On the other hand,
each HO and/or branch shall be issued with a COR
within the period/time prescribed under the existing
“BIR Citizens Charter”.Persons issued with COR shall
post or exhibit his/its original COR and duly validated
ARF Return at his/its principal place of business and at
each branch and/or facility in a way that is clearly and
easily visible to the public.
An ARF in the amount of P 500.00 for every HO and/or
branch shall be paid upon registration and every year
thereafter on or before January 31. However, the
following shall be exempt from the imposition of ARF:
a. Cooperatives duly registered with the Cooperative
Development Authority;
b. Individual residents earning purely compensation
income
c. OCWs/OFWs;
d. Marginal Income Earners;
e. GAIs, in the discharge of their governmental
functions;
f. LGUs, in the discharge of their governmental
functions;
g. Tax exempt corporations such as those enumerated
under Section 30 of the Code, as amended, in
pursuance of tax-exempt activities;
h. Non-stock/non-profit organizations not engaged in
business;
i. Persons subject to tax under one-time transactions;
j. Persons registered under EO 98, series of 1998; and
k. Facility/ies where no sales transactions occur.
Any profit-oriented activity pursued by GAIs, LGUs
and/or tax-exempt entity, which partakes the nature of
an activity similar to those undertaken by those
engaged in business shall be treated as an activity in
pursuance of a business for which the payment of ARF
must be imposed.
The ARF shall likewise be paid in cases where parts of
the activities or undertakings conducted in a facility of
the business involve sales transactions regardless of
the frequency of the occurrence thereof.
The ARF shall be paid, in full amount, to an Authorized
Agent Bank (AAB) located within the BIR district office
or to the Revenue Collection Officer (RCO) or duly
authorized Treasurer of the City or Municipality where
each place of business or branch is registered, or thru
the BIR accredited payment facilities such as Electronic
Filing and Payment System (EFPS) and G-Cash.
Payment of ARF shall be made thru EFPS for taxpayers
mandated to use EFPS such as Large
Taxpayer, Top 20,000 Corporations, Top 5,000
Individuals, etc. for their respective HO and Branches.
Registration occurring during the interim period of the
initial year shall be imposed with the same full amount
of P 500.00 as ARF.
When any individual who has paid the ARF dies, and
the same business is continued by the person or
persons interested in his estate, those continuing the
business should register as a separate entity reflecting
in said registration that it is pursuing the business
enterprise as heirs of the estate of the decedent.
Accordingly, the person or persons interested in the
estate should, within 30 days from the death of the
decedent, submit to the concerned BIR district office
inventories of goods or stocks at the time of death of
the registered individual upon registration and the ARF
should be paid. This requirement shall also be
applicable in the case of transfer of ownership or
change of name of the business establishment.
Every person, who is required to register with the BIR
under Section 4 of the Regulations, shall register each
type of internal revenue tax for which he/it is obligated
to file a return or pay taxes due thereon. Such person
shall update the BIR for any changes in his/its
registration information.
Generally, registration of tax types by a business
entity consists of but not limited to the following
internal revenue taxes/fees:
a. Income tax;
b. Value-Added Tax (VAT) and/or Percentage Tax;
c. Withholding tax on compensation;
d. Creditable Withholding Tax at source on certain
income payments;
e. Final Withholding Tax on certain income payments;
f. Documentary Stamp Tax;
g. Excise tax; and
h. Annual Registration Fee.
The nature of the business to which the taxpayer
belongs shall be taken into consideration in
determining the type of taxes that must be registered.
In order to avoid the generation of invalid “stop-filer”
cases in the BIR’s database, only those tax types,
which the taxpayer is expected to regularly/periodically
file the return and/or pay the tax shall be registered.
In case a taxpayer fails to update his tax types prior to
filing/payment of a tax return, the duly authorized BIR
personnel must register the corresponding tax type for
the Tax Return to be filed/paid except for VAT and/or
Percentage Taxes, which must be applied for by the
taxpayer. The BIR personnel initiating the update in
behalf of the taxpayer must inform him of such
update, in writing, to give due notice on his obligation
to subsequently file the return on a regular basis on or
before the prescribed deadline for filing.
The registration of Income Tax as a tax type does not
automatically carry with it the registration of VAT
and/or Percentage Tax as a covered/registered tax
type. For marginal income earners, the activities of
such individuals are considered principally for
subsistence or livelihood.
Moreover, they are not required to pay any ARF
although they are required to register as taxpayers for
being potential Income and Withholding Tax filers. For
purposes of registration, they will be registered for the
tax type Income Tax and Form Type 1701.
Notwithstanding their exemption from business taxes
and ARF, they are liable to pay Income Taxes similar
to any other individual engaged in business or practice
of profession, after applying the allowable deductions
against their Gross Income/Sales/Receipts and
personal/additional exemptions granted under the Tax
Code.
For those enjoying Income Tax holidays, or exemption
from other taxes for a limited time, as granted
pursuant to special laws, the type of taxes the
taxpayer is exempt from paying on the account
thereof, the effectivity and expiry date shall be
indicated. However, upon expiration thereof, it shall be
the duty of the taxpayer to update his/its registration
and/or the BIR district office must be duly informed in
writing.
The rules in determining the proper tax type of a
taxpayer (i.e., whether VAT or other Percentage
Taxes) are specified in the Regulations.
In case a registered person transfers his registered
address to a new location, it shall be his duty to inform
the BIR district office where he is registered of such
fact by filing the prescribed
BIR Form specifying therein the complete address
where he intends to transfer. The guidelines relative to
transfer of registration of non-business individuals,
local employees and taxpayers engaged in business or
practice of profession (individual/non-individual) are
specified in the Regulations.
The new BIR district office of the transferred taxpayer
shall issue the COR immediately after the transfer of
the taxpayer’s registration by the old BIR district
office. The COR, Sales Invoice/Official Receipt (SI/OR)
used in the old business location can still be used in
the new business location without penalty, until a new
COR and ATP is issued by the new BIR district office;
provided that the taxpayer can show a copy of duly
received update form filed with the old BIR district
office; provided further that the taxpayer shall stamp
the new address on the old SI/OR when the same is to
be issued in the new business address. In cases all the
SI/OR are consumed prior to the online transfer of its
records in the BIR’s ITS database, the taxpayer shall
still apply with the old BIR district office for an ATP for
the new sets of receipts/invoices. The filing of tax
returns and payment of taxes to the new BIR district
office shall commence following the issuance of the
new COR. The new BIR district office shall be
responsible for notifying the taxpayer concerned that
the transfer of registration has already been
completed.
Any person registered in accordance with Section 4(2)
of the Regulations shall, whenever applicable, update
his registration information with the BIR district office
where he is registered using BIR Form/s prescribed by
the BIR. The instances when a taxpayer must update
his registration information include (but are not limited
to) the following:
a. A change in the nature of the business from sale of
taxable goods and/or services to being VAT-exempt;
b. A person whose transactions are exempt from VAT
but voluntarily registered under the VAT system, and
after the lapse of 3 years after his registration applies
for cancellation of his VAT registration. However, the
optional registration as a VAT taxpayer of a franchise
grantee of radio and/or television broadcasting whose
gross receipts for the preceding year did not exceed P
10,000,000.00 shall be irrevocable;
c. A VAT-registered person whose gross sales or
receipts for 3 consecutive years did not exceed the
amount of P 1,919,500.00; Provided, That every 3
years thereafter, the amount therein stated shall be
adjusted to its present value using the Consumer Price
Index, as published by the National Statistics Office
(NSO); Provided further, that such adjustment shall be
published through Revenue Regulations to be issued
not later than March 31 of each year. Upon updating
his registration, the taxpayer shall become liable to the
Percentage Tax imposed under Section 116 of the
Code, as amended. A short period return for the
remaining period that he was VAT-registered shall be
filed within 25 days from the date of cancellation of his
VAT registration as a tax type and at the same time
register for Percentage Tax as his new tax type; and
d. Any other changes/updates in registration
information previously supplied, including cancellation
or change in any tax types.
The cancellation of business registration of an
individual shall not automatically cancel his TIN. The
TIN shall remain active subject to subsequent updates
on his registration. In this case, the BIR district office
shall end date the particular registered form/tax type
of such taxpayer in the ITS database upon complete
submission of the requirements for cancellation of
business registration. If subsequently, such taxpayer
engages in a taxable activity (e.g. employment or
establishment of a new business), the concerned BIR
district office shall make the necessary updates on the
registration records of such taxpayer corresponding to
his new activity.
In the case of juridical entities, the BIR district office
shall prepare a monthly list of nonindividual taxpayers
filing for cancellation of business registration for
submission to the Assistant Commissioner –
Information Systems Operations Service, through the
Revenue Data Centers (RDC), for purposes of tagging
said taxpayers as “Inactive”. Once tagged as
“Inactive”, such taxpayer shall no longer be included in
the roster of active taxpayers under the concerned BIR
district office.
In the case of TIN issued to an estate of a decedent
under ONETT, upon full payment of the Estate Tax by
the heirs, administrator or executor, the issued TIN of
the estate shall be tagged as “Inactive”. The tagging of
said taxpayer as inactive shall be coursed through the
RDC of concerned BIR district office. However, in case
of additional properties discovered after payment of
the Estate Tax, the TIN previously issued for such
estate shall be updated to “Active” status in order to
facilitate the filing of the amended Estate Tax Return
and shall be cancelled upon full settlement of the tax
liabilities of the estate.
Registered taxpayers who failed to file any tax return
for 2 consecutive years or more shall be tagged as
“Inactive” and an investigation shall be initiated. As
such, upon classification as Inactive, all CRM/POS
Permits issued to them as well as any unused Official
Receipts/Invoices for which a valid ATP has been
previously granted, shall be deemed
cancelled/invalidated as of date of tagging.
Provided that the Inactive self-employed individual is
not likewise employed, non-filing of tax return shall
qualify him for tagging as Inactive. Where such
taxpayer is also registered as an employee, he or she
will not be tagged as Inactive but any unused Official
Receipts/Invoices, for which a valid ATP has been
previously granted for his or her business, shall be
deemed cancelled/invalidated upon “end-dating” of its
registered business tax types.
The cancellation of registration may either pertain to
cancellation of business registration and/or the
assigned TIN. Application for TIN/Registration
cancellation shall take place upon
a. Death of individual;
b. Full settlement of the tax liabilities of the estate;
c. Discovery of a taxpayer having multiple TINs; and
d. Dissolution, merger or consolidation of juridical
person.
Any request for certification that may be requested by
a taxpayer from the BIR district office where he is
registered on matters relating to his registration shall
be charged with a fee in an amount not exceeding P
100.00, in addition to the Documentary Stamp Tax
imposed under Section 188 of the Code, as amended,
subject to change upon approval of the CIR thru a
subsequent issuance. The Certification Fee shall be
collected on each set of documents regardless of the
number of pages of such document.
The following violations related to primary registration
shall be penalized as follows:
a. Failure to register (those who are found
unregistered during TCVD – subject to the penalties
under prevailing revenue issuances
b. Late Registration (those who are voluntary
registering, but beyond the prescribed period as
indicated in these Regulations) – compromise penalty
of P 1,000.00, in addition to the unpaid ARF and
penalties due thereon for every year that the business
is in operation. This provision shall not apply to
application for TIN of employees
c. Late payment of ARF – subject to 25% surcharge
and 20% interest per annum and P 200.00 penalty
d. Failure to register a branch or facility – subject to
penalty of P 1,000.00 per unregistered branch or
facility
e. Acquisition of Multiple TINs – aside from the criminal
liability that may be imposed, P 1,000.00 for every TIN
acquired in excess of one
f. Failure to and/or erroneous supply of information – P
1,000.00 for every error/omission, but not to exceed P
25,000.00
g. Any violation of the provisions of these Regulations
shall be subject to penalties provided under Sections
254 and 275, and other pertinent provisions of the
Code, as amended.
Portions of the Regulations, which can be implemented
immediately given the present capabilities of the BIR
Registration System shall strictly be complied with
upon the effectivity of the Regulations. Nevertheless,
for provisions hereof, which can only be implemented
as the enhancements are put in place in the
registration database, transitory procedures shall be
provided in a separate Revenue Memorandum Order to
be issued for the purpose. Pending the issuance of
transitory procedures, existing rules and procedures
(status quo) shall be observed in the meantime.
RR 10-2011
Based on the amendment to Section 4.106-8 of RR
No. 16-2005, 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:
a. 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 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.
b. Change in the trade or corporate name of the
business;
c. Merger or consolidation of corporations. The unused
input tax of the dissolved corporation, as of the date of
merger or consolidation, shall be absorbed by the
surviving new corporation.
RR 8-2010
issued on September 3, 2010 amends Revenue
Regulations No. 7-2010 implementing the tax
privileges provisions of Republic Act No. 9994,
otherwise known as the “Expanded Senior Citizens Act
of 2010”, by excluding the special discounts on electric
and water consumption of senior citizens from
exemption from the ValueAdded Tax (VAT).
RR 7-2010
Qualified Senior Citizens deriving returnable income
during the taxable year, whether from compensation
or otherwise, are required to file their Income Tax
Returns (ITR) and pay the tax as they file the return.
However, if the returnable income of a Senior Citizen is
in the nature of compensation income but he qualifies
as a minimum wage earner under RA No. 9504, he
shall be exempt from Income Tax (IT) on the said
compensation income subject to the rules applicable to
minimum wage earners.
Likewise, if the aggregate amount of gross income
earned by the Senior Citizen during the taxable year
does not exceed the amount of his personal
exemptions (basic and additional), he shall be exempt
from IT and shall not be required to file an ITR upon
compliance with the following requirements:
a. A Senior Citizen must first be qualified as such by
the Commissioner of Internal Revenue or his duly
authorized representative (i.e., the Revenue District
Officer (RDO) having jurisdiction over the place where
the Senior Citizen resides), by submitting a certified
true copy of his Senior Citizen Identification Card
(OSCA ID) issued by the OSCA of the city or
municipality where he resides;
b. He must file a Sworn Statement on or before
January 31 of every year that his annual taxable
income for the previous year does not exceed the
poverty level as determined by the National Economic
and Development Authority (NEDA) thru the National
Statistical Coordination Board (NSCB); and
c. If qualified, his name shall be recorded by the RDO
in the Master List of Tax-Exempt Senior Citizens for
that particular year, which the RDO is mandatorily
required to keep.
However, a Senior Citizen who is a compensation
income earner deriving from only one employer an
annual taxable income exceeding the poverty level or
the amount determined by the NEDA thru the NSCB on
a particular year, but whose income had been
subjected to the Withholding Tax on compensation,
shall, although not exempt from IT, be entitled to the
substituted filing of ITR.
The exemption of Senior Citizens from IT will not
extend to the following taxes:
a. The 20% Final Withholding Tax (FWT) on interest
income from any currency bank deposit, yield and
other monetary benefit from deposit substitutes, trust
fund and similar arrangements; royalties (except on
books, as well as other literary works and musical
compositions, which shall be imposed a FWT of 10%);
prizes (except prizes amounting to P 10,000 or less
which shall be subject to IT at the rates prescribed
under Sec. 24(A) of the Tax Code), and other winnings
(except Philippine Charity Sweepstakes and Lotto
winnings);
b. The 7.5% FWT on interest income from a depository
bank under the expanded foreign By management
accounts and other investments evidenced by
certificates in such form prescribed by the Bangko
Sentral ng Pilipinas before the fifth year, he shall be
subject to the FWT imposed on the entire income
depending on the following holding period of the
deposit or investment. If held for a period of:
• Four years to less than five years — 5%
• Three years to less than four years — 12%; and
• Less than three years — 20%
d. The 10% FWT –
i. On cash and/or property dividends actually or
constructively received from a domestic corporation or
from a joint stock company, insurance or mutual fund
company and a regional operating headquarters of a
multinational company; or
ii. On the share of an individual in the distributable net
income after tax of a partnership (except a general
professional partnership) of which he is a partner; or
iii. On the share of an individual in the net income after
tax of an association, a joint account, or a joint
venture or consortium taxable as a corporation of
which he is a member or a co-venturer.
e. Capital Gains Tax from sales of shares of stock not
traded in the stock exchange; and
f. The 6% FWT on presumed capital gains from sale of
real property, classified as capital asset, except capital
gains presumed to have been realized from the sale or
disposition of principal residence.
A Senior Citizen shall also be subject to the following
internal revenue taxes, among others, imposed under
the Tax Code:
a. Value-Added Tax (VAT) or other Percentage Tax, as
the case may be – If he is self-employed or engaged in
business or practice of profession, and his gross annual
sales and/or receipts exceeds P1,919,500 or such
amount to which this may be adjusted pursuant to
Sec. 109(1)(V) of the Tax Code, he shall be subject to
VAT. Otherwise, he shall be subject to the 3%
Percentage Tax;
b. Donor's Tax – All donations made by a Senior
Citizen during any calendar year, unless exempt under
a specific provision of law, shall be subject to the
Donor’s Tax Imposed under Title III of the Tax Code;
c. Estate Tax – In the event of death, the estate of the
Senior Citizen may also be subject to the Estate Tax
following the rules enunciated under Title III of the Tax
Code and its implementing Regulations;
d. Excise Tax on certain goods; and
e. Documentary Stamp Tax.
All establishments, supplying any of the following
goods and services to Senior Citizen for their exclusive
use and enjoyment or availment, shall give a discount
of 20%:
a. Medicines, including influenza and pneumococcal
vaccines, and such other essential medical supplies,
accessories and equipment to be determined by the
Department of Health (DOH). On all drug stores,
hospital pharmacies, medical and optical clinics and
similar establishments dispensing medicines, the
discount for sales of drugs/medicines shall be subject
to the guidelines to be issued by the Bureau of Food
and Drugs (BFAD), DOH, in coordination with the
Philippine Health Insurance Corporation (PhilHealth).
b. On the professional fees of attending physician/s in
all private hospitals, medical facilities, outpatient
clinics and home health care services, where the
discount shall be based on the compensation for
services charged from the Senior Citizen.
c. On professional fees of licensed professional health
workers providing home health care services as
endorsed by private hospitals or employed through
home health care employment agencies, where the
discount shall be based on the fees charged from the
Senior Citizen.
d. 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
PhilHealth.
e. In actual fare for land transportation travel in Public
Utility Buses, Public Utility Jeepneys, taxis, Asian Utility
Vehicles, shuttle services and public railways, including
Light Rail Transit, Mass Rail Transit and Philippine
National Railways.
f. On actual transportation fare for domestic air
transport services and sea shipping vessels and the
like, based on the actual fare and advanced booking.
g. On the utilization of services in hotels and similar
lodging establishments, restaurants and recreation
centers.
h. On admission fees charged by theaters, cinema
houses and concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement,
where the discount shall be on the admission fees
charged by the said establishments;
i. On funeral and burial services for the death of Senior
Citizens. The beneficiary or any person who shall
shoulder the funeral and burial expenses of the
deceased Senior Citizen shall claim the discount, such
as casket, embalmment, cremation cost and other
related services for the Senior Citizen upon payment
and presentation of his death certificate;
The monthly utilization of water and electricity by the
Senior Citizen supplied by public utilities will be subject
to a 5% discount upon concurrence of the following:
a. The individual meters for the said utilities are
registered in the name of the Senior Citizen residing
therein;
b. The monthly consumption does not exceed 100kwh
of electricity and 30 m3 of water; and
c. The privilege is granted per household regardless of
the number of Senior Citizens residing therein.
For the consumption of water, electricity and
telephone, there shall be granted by public utilities a
discount of at least 50% on the consumption by a
Senior Citizens Center and residential care/group
homes that are run by the Government or by a non-
stock, non-profit domestic corporation organized and
operated primarily for the purpose of promoting the
well-being of abandoned, neglected, unattached, or
homeless Senior Citizens, subject to the guidelines
formulated by the Department of Social Welfare and
Development.
All establishments supplying any of the said goods and
services may claim the discounts granted as a tax
deduction based on the cost of the goods sold or
services rendered to Senior Citizens. The discounts
granted to Senior Citizens by the seller of qualified
goods and services shallbe treated as an ordinary and
necessary expenses deductible from the gross income
of the seller falling under the category of itemized
deductions, and can only be claimed if the seller does
not opt for the Optional Standard Deduction during the
taxable quarter/year. The claim of the discount
granted under the Act, as an additional item of
deduction from the gross income of the seller, is
subject to the following conditions:
a. Only that portion of the gross sales exclusively used,
consumed or enjoyed by the Senior Citizen shall be
eligible for the deductible sales discount.
b. The gross selling price and the sales discount must
be separately indicated in the official receipt or sales
invoice issued by the establishment for the sale of
goods or services to the Senior Citizen.
c. Only the actual amount of the discount granted or a
sales discount not less than the statutory rate (20%,
5% or 50% when applicable), whichever is higher,
based on the gross selling price can be deducted from
the gross income, net of VAT, if applicable, for Income
Tax purposes, and from gross sales or gross receipts of
the business enterprise concerned, for VAT or other
Percentage Tax (PT) purposes.
d. The seller must record its sales inclusive of the
discount granted.
e. The discount can only be allowed as a deduction
from gross income for the same taxable year that the
discount is granted.
f. The business establishment giving sales discounts to
qualified Senior Citizens is required to keep a separate
and accurate record of sales, which shall include the
name of the Senior Citizen, OSCA ID, gross
sales/receipts, sales discount granted, dates of
transactions and invoice numbers for every sale
transaction to Senior Citizen.
g. Only business establishments selling any of the
qualified goods and services to Senior Citizens where
an actual discount was granted may claim the
deduction.
h. The seller must not claim the Optional Standard
Deduction during the taxable year. The sellers are
precluded from billing any VAT to the Senior Citizen to
ensure the full entitlement to the discount prescribed
in the Act. If the seller uses a Point of Sale Machine or
a Cash Register Machine in lieu of the regular sales
invoice, the machine tape must properly segregate the
exempt sales from the taxable sales. The input tax
attributable to the exempt sale shallnot be allowed as
an input tax credit and must be closed to cost or
expense account by the seller.
The exemption herein granted will not cover other
indirect taxes that may be passed on by the seller to a
Senior Citizen buyer, such as Percentage Tax, Excise
Tax, etc. In such a case, the discount must be on the
total cost of the goods or services charged by the
seller exclusive of the tax.
A benefactor of a Senior Citizen shall be entitled to
claim the basic personal exemption of P 50,000.00,
which is the amount of basic personal exemption
allowed under RA No. 9504 for all taxpayers required
to file ITRs. A Senior Citizen who is not gainfully
employed, living with and dependent upon his
benefactor for chief support, although treated as
dependent under the Act, will not entitle the
benefactor to claim the additional personal exemption
of P 25,000.00. The entitlement to claim the additional
personal exemption per dependent (not exceeding
four) is allowable only to individual taxpayers with a
qualified dependent child or children, subject to the
conditions set forth under Section 35(B) of the Tax
Code, as amended. If required to file an ITR, the
benefactor shall state therein the name, birthday and
OSCA ID number of the dependent Senior Citizen.
Private establishments employing Senior Citizens shall
be entitled to additional deduction from their gross
income equivalent to 15% of the total amount paid as
salaries and wages to Senior Citizens, subject to the
provision of Section 34 of the Tax Code and its
implementing rules and regulations, provided the
following conditions are met:
a. The employment shall have to continue for a period
of at least six (6) months;
b. The annual taxable income of the Senior Citizen
does not exceed the poverty level as may be
determined by the NEDA thru the NSCB. For this
purpose, the Senior Citizen shall submit to his
employer a sworn certification that his annual taxable
income does not exceed the poverty level.
Any person who violates any provision of the
Regulations shall suffer the penalties provided in the
Tax Code. Furthermore, any person who violates any
provision of the Implementing Rules and Regulations
(IRR) of the Act shall be imposed the following
penalties:
a. For the first violation, a fine of not less than P
50,000.00 but not exceeding P 100,000.00 and
imprisonment of not less than two (2) years but not
more than six (6) years; and
b. For any subsequent violation, a fine of not less than
P 100,000.00 but not exceeding P 200,000.00 and
imprisonment for not less than two (2) years but not
less than six (6) years.
Any person who abuses the privileges granted herein
shall be punished with a fine of not less than P
50,000.00, but not more than P 100,000.00, and
imprisonment of not less than six (6) months. If the
offender is an alien or a foreigner, he shall be deported
immediately after service of sentence without further
deportation proceedings. If the offender is a
corporation, organization or any similar entity, the
official/s thereof directly involved shall be liable
therefore.
Upon filing an appropriate complaint and after due
notice and hearing, the proper authorities may also
cause the cancellation or revocation of the business
permit, permit to operate, franchise and other similar
privileges granted to any business entity that fails to
abide by the provisions of the Act and its IRR and the
Regulations.
RMC-38-2012
Please the PDF File
RMC 45-2010 issued on June 2, 2010 circularizes
Section 4 and 5 of Republic Act (RA) No. 9994 relative
to the grant of additional benefits and privileges to
Senior Citizens, further amending Republic Act No.
7432, as amended, otherwise known as “An Act to
Maximize the Contribution of Senior Citizens to Nation
Building, Grant Benefits and Special Privileges and for
Other Purposes”.
Among the privileges granted to Senior Citizens are:
a. Grant of 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:
i. on the purchase of medicines;
ii. on the professional fees of attending physician/s in
all private hospitals, medical facilities, outpatient
clinics and home health care services;
iii. 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;
iv. on medical and dental services, diagnostic and
laboratory fees in all private hospitals, medical
facilities, outpatient clinics, and home health care
services;
v. in actual fare for land transportation travel,
domestic air transport services and sea shipping
vessels and the like;
vi. on the utilization of services in hotels and similar
lodging establishments, restaurants and recreation
centers;
vii. on admission fees charged by theaters, cinema
houses and concert halls, circuses, leisure and
amusement; and
viii. on funeral and burial services for the death of
Senior Citizens.
b. Exemption from the payment of individual Income
Taxes of Senior Citizens who are considered to be
minimum wage earners
c. Grant of a minimum of 5% discount relative to the
monthly utilization of water and electricity supplied by
the public utilities
RR 74-99
SECTION 1. Scope. — This Circular is being issued to
consolidate and harmonize all the pertinent tax laws
and their corresponding implementing rules and
regulations in respect of sales of goods, property and
services to and from the ECOZONES, in relation to the
provisions of R.A. No. 7916, as amended by R.A. No.
8748, entitled "The Special Economic Zone Act of
1995" which created the Philippine Economic Zone
Authority (PEZA).
SECTION 2. Background. — In general, enterprises
registered and operating under the said Act, otherwise
known as ECOZONE or PEZA registered enterprises,
shall only be imposed with a 5% special tax, based on
"gross income earned" in lieu of all taxes, except the
real property tax. However, this tax incentive only
applies in respect of the registered enterprise's
operations within the ECOZONE. The ECOZONES "are
selected areas with highly developed or which have the
potential to be developed into agro-industrial,
industrial tourist/recreational, commercial, banking,
investment and financial centers. An ECOZONE may
contain any or all of the following: industrial estates,
export processing zones, free trade zones, and
tourist/recreational centers." (SEC. 4 (a), R.A. No.
7916).
The ECOZONE "shall be managed and operated by
the PEZA as a separate customs territory." (SEC. 8,id.)
The term "Customs Territory" means "the national
territory of the Philippines outside of the proclaimed
boundaries of the ECOZONES except those areas
specifically declared by other laws and/or presidential
proclamations to have the status of special economic
zones and/or free ports." (Sec. 1 (g),PEZA Rules and
Regulations). Generally, products manufactured or
produced within the ECOZONE are destined for export
to foreign countries. While such products, under
certain conditions, may also be sold to buyers in the
Customs Territory, i.e., outside the ECOZONE, such
sales are technically considered as importation by such
buyer from the Customs Territory. Since the ECOZONE
is technically treated as another separate Customs
Territory, the buyer is treated as an importer and is
imposed with the corresponding import taxes and
customs duties on his purchase of products from within
the ECOZONE. While all ECOZONE enterprises are not
necessarily manufacturer-exporters of products
considering that there are also service enterprises
registered as ECOZONE enterprises, however, taken as
a whole, all their integrated activities eventually
translate into manufactured products which are either
actually exported to foreign countries, in which case,
no VAT must form part of its export price; or actually
sold to buyers from the Customs Territory, in which
case, 10% VAT shall be paid thereon by such buyers,
consistent with the "Cross Border Doctrine" of the VAT
system. The Philippines' Value Added Tax (VAT) law
adheres to the "Cross Border Doctrine" of the VAT
System, which basically means that no VAT shall be
imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the
taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must
be free of the VAT. Conversely, those destined for use
or consumption within the Philippines shall be imposed
with the 12% VAT. Accordingly, interpretation of the
provisions of the VAT law has been harmonized with
the "Cross Border Doctrine".
SECTION 3. Tax Treatment Of Sales Made By A
VAT Registered Supplier From The Customs
Territory, To A PEZA Registered Enterprise. —
(1) If the Buyer is a PEZA registered enterprise which
is subject to the 5% special tax regime, in lieu of all
taxes, except real property tax, pursuant to R.A. No.
7916, as amended:
(a) Sale of goods (i.e., merchandise). — This shall be
treated as indirect export hence, considered subject to
zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916,
in relation to ART. 77(2) of the Omnibus Investments
Code. (b) Sale of service. — This shall be treated
subject to zero percent (0%) VAT under the "cross
border doctrine" of the VAT System, pursuant to VAT
Ruling No. 032-98 dated Nov. 5, 1998. (2) If Buyer is
a PEZA registered enterprise which is not embraced by
the 5% special tax regime, hence, subject to taxes
under the NIRC, e.g., Service Establishments which
are subject to taxes under the NIRC rather than the
5% special tax regime: (a) Sale of goods (i.e.,
merchandise). — This shall be treated as indirect
export hence, considered subject to zero percent (0%)
VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec.
23 of R.A. No. 7916 in relation to ART. 77(2) of the
Omnibus Investments Code.
(b) Sale of Service. — This shall be treated subject to
zero percent (0%) VAT under the "cross border
doctrine" of the VAT System, pursuant to VAT Ruling
No. 032-98 dated Nov. 5, 1998. 3. In the final
analysis, any sale of goods, property or services made
by a VAT registered supplier from the Customs
Territory to any registered enterprise operating in the
ecozone, regardless of the class or type of the latter's
PEZA registration, is actually qualified and thus legally
entitled to the zero percent (0%) VAT. Accordingly, all
sales of goods or property to such enterprise made by
a VAT registered supplier from the Customs Territory
shall be treated subject to 0% VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the
Omnibus Investments Code, while all sales of services
to the said enterprises, made by VAT registered
suppliers from the Customs Territory, shall be treated
effectively subject to the 0% VAT, pursuant to Section
108(B)(3), NIRC, in relation to the provisions of R.A.
7916 and the "Cross Border Doctrine" of the VAT
system. Cdpr This Circular shall serve as a sufficient
basis to entitle such supplier of goods, property or
services to the benefit of the zero percent (0%) VAT
for sales made to the aforementioned ECOZONE
enterprises and shall serve as sufficient compliance to
the CD Technologies Asia, Inc. © 2016
cdasiaonline.com requirement for prior approval of
zero-rating imposed by Revenue Regulations No. 7-95
effective as of the date of the issuance of this Circular.
SECTION 4. Tax Treatment Of Sales Made By A
VAT-Exempt Supplier From The Customs
Territory, To A PEZA Registered Enterprise. —
Sale of goods, property and services by VAT-Exempt
Supplier from the Customs Territory, to a PEZA-
registered enterprise shall be treated exempt from
VAT, pursuant to Sec. 109, in relation to Sec. 236,
NIRC, regardless of whether or not the PEZA registered
buyer is subject to taxes under the NIRC, or enjoying
the 5% special tax regime, or a registered
manufacturer-exporter the "Cross Border Doctrine" of
the VAT System to the contrary notwithstanding.
SECTION 5. Tax Treatment Of Sales Made By A
PEZA Registered Enterprise. —
(1) Sale of goods (i.e., merchandise), by a PEZA-
registered enterprise, to a buyer from the Customs
Territory (i.e., domestic sales). — This case shall be
treated as a technical importation made by the Buyer.
Such Buyer shall be treated as an importer thereof and
shall be imposed with the corresponding import tax/es
(i.e., VAT or VAT plus excise tax, as the case may be),
pursuant to Sec. 107, Title IV and Title VI, NIRC, in
relation to Sec. 26, R.A. No. 7916, as implemented by
Sec. 2, Rule VIII, PART V of the PEZA rules and
regulations entitled "Rules and Regulations to
Implement Republic Act No. 7916." The registered
enterprise's "gross income earned" therefrom shall be
subject to the 5% special tax pursuant to Sec. 24 of
R.A. No. 7916: Provided, however, that its sales in the
Customs Territory do not exceed the threshold allowed
or permitted for such sales, pursuant to the pertinent
provisions of the PEZA rules and regulations: Provided,
further, that for income tax purposes, if such sales
should exceed the aforesaid threshold, its income
derived from such excess sales shall be imposed with
the normal income tax pursuant to the provisions of
Title II, NIRC: Provided, further, that in computing for
the income tax due on such excess sales, its net
income from such excess sales shall be determined in
accordance with the method of general apportionment
pursuant to the provisions of Sec. 50, NIRC, (i.e.,
compute its total net income from total sales, then,
compute its net income from such excess sales by
general apportionment, as follows: Excess sales
divided by total sales times total net income from total
sales equals net income from excess sales).
(2) Sale of Services by a PEZA Registered Enterprise
to a Buyer from the Customs Territory. — This type of
transaction is not embraced by the 5% special tax
regime governing PEZA-registered enterprises
pursuant to R.A. No. 7916, as implemented by the
PEZA rules and regulations hence, such seller shall be
subject to the 12% VAT, pursuant to Section 108 or to
the percentage tax, pursuant to Title V, whichever is
applicable, and to the normal income tax on income
derived therefrom, pursuant to Title II, NIRC. Such
income tax shall be computed in accordance with the
method of general apportionment provided in the
immediately preceding paragraph.
(3) Sale of Goods, by a PEZA Registered Enterprise, to
Another PEZA (i.e., Intra ECOZONE Sales of Goods). —
Its sale of goods or property to another zone
enterprise shall be exempt from VAT, pursuant to Sec.
109(q), NIRC, in relation to Sec. 24, R.A. 7916, as
implemented by Sec. 1, Rule VIII, PART V, of the PEZA
implementing rules and regulations.
(4) Sale of Service by ECOZONE Enterprise, to
Another ECOZONE Enterprise (Intra ECOZONE
Enterprise Sale of Service):
(a) If PEZA-Registered Seller is Subject to the 5%
Special Tax Regime. — Exempt from VAT or any
percentage tax, pursuant to Sec. 24, R.A. 7916. (b) If
PEZA-Registered Seller is Subject to Taxes Under the
NIRC . — Subject to zero percent (0%) VAT pursuant
to the "Cross Border Doctrine" of the VAT system,
regardless of the type or class of PEZA registration of
the PEZA enterprise. Buyer, since the use for or benefit
from such purchase of service shall eventually be
translated to actual export of goods (i.e., shipment of
goods to a foreign country, which is subject to zero
percent (0%) VAT, or translated into technical export
of goods (i.e., sale of goods to a buyer from the
Customs Territory, which is treated as importation by
such buyer, hence, subject to 12% VAT against the
said buyer).
SECTION 6. Repealing Clause. — Any BIR Ruling, if
inconsistent herewith, is hereby considered amended,
modified or revoked accordingly.
IRR of RA 10754
Section 5. Definition of Terms – For purposes of
these Rules and Regulations, these terms are defined
as follows:
5.1 Persons with Disability – are those who have
long-term physical, mental, intellectual or sensory
impairments which in interaction with various barriers
may hinder their full and effective participation in
society on an equal basis with others. For purposes of
these Rules and Regulations, persons with disability
shall be classified by the Department of Health (DOH)
through an issuance.
5.2 Basic Necessities – are goods vital to the needs
of consumers for their sustenance and existence such
as, but not limited to, rice; corn; root crops; bread;
fresh, dried or canned fish and other marine products;
fresh pork, beef and poultry meat; fresh eggs, potable
water in bottles and containers; fresh and processed
milk; fresh vegetables and fruits; locally manufactured
instant noodles; coffee; coffee creamer; sugar;
cooking oil; salt; laundry soap and detergents;
firewood; charcoal; household liquefied petroleum gas
(LPG) and kerosene; candles; drugs classified as
essential by the Department of Health and such other
goods as may be classified by the Department of Trade
and Industry and Department of Agriculture.
5.3 Dental Services – refers to oral examination,
cleaning, permanent and temporary filling, extractions
and gum treatments, restoration, replacement or
repositioning of teeth, or alteration of the alveolar or
periodontium process of the maxilla and the mandible
that are necessary for the diagnosis and/or treatment
of a dental illness or injury.
5.4 Diagnostic and Laboratory Tests – any
procedure conducted for diagnostic purposes. It shall
include such procedures as x-rays, CT-scans, MRI
scans, PET scans, blood chemistry exams,
histopathology and immunopathology, hematology,
urine analysis, parasitology and bacteriology tests,
serology, blood banking and all other diagnostic
radiology, clinical laboratory and other diagnostic
examinations that are necessary for the diagnosis of
the disability or medical condition of a person with
disability. It shall also include clinical psychological
tests, assessment of speech conditions, test for
hearing acuity, visual acuity, learning impairment, and
related psychosocial conditions like drug testing.
5.5 Drug / Medicine – refers to any chemical
compound or biological substance, other than food,
intended for use in the treatment, prevention or
diagnosis of disease in humans or animals, including
but not limited to:
5.5.1 Any article recognized in the official United
States Pharmacopoeia – National Formulary (USP-NF),
official Homeopathic Pharmacopoeia of the United
States, Philippine Pharmacopoeia, Philippine National
Drug Formulary, British Pharmacopoeia, European
Pharmacopoeia, Japanese Pharmacopoeia, Indian
Pharmacopoeia, any national compendium or any
supplement to any of them
5.5.2 Any article intended for use in the diagnosis,
cure, mitigation, treatment or prevention of disease in
humans or animals
5.5.3 Any article other than food intended to affect the
structure or any function of the human body or
animals
5.5.4 Any article intended for use as a component of
any articles specified in items 5.5.1 to 5.5.3 not
including devices or their components, parts or
accessories
5.5.5 Herbal and/or traditional drugs which are articles
of plant or animal origin used in folk medicine which
are:
 Recognized in the Philippine National Drug
Formulary
 Intended for use in the treatment or cure or
mitigation of disease symptoms, injury or body
effects in humans
 Other than food, intended to affect the structure or
any function of the human body
 In finished or ready-to-use dosage form
 Intended for use as a component of any of the
articles specified in bullets 1 to 4.
These may also include vitamins and minerals provided
that these are in accordance with the Food and Drug
Administration’s prevailing cut-off on vitamins and
minerals classified as drug / medicine i.e product
containing more than 150% of water-soluble vitamins
and more than 102% of fat soluble vitamins. For herbs
to be classified under this definition, levels and
amounts as well as registration status is required when
indicated for therapeutic use.
5.6 Essential Drug / Medicine – refers to drugs /
medicines that satisfy the priority health care needs of
the population and which are selected based on the
evidence of their efficacy, safety and comparative cost
effectiveness.
5.7 Essential Drug List or National Drug
Formulary – Refers to a list of drugs prepared and
periodically updated by the Department of Health on
the basis of health conditions obtaining in the
Philippines as well as on internationally accepted
criteria.
5.8 Foods for Special Medical Purposes – refers to
category of foods for special dietary uses which are
specially processed or formulated and presented for
the dietary management of patients and may be used
only under medical supervision. They are intended for
the exclusive or partial feeding of patients with limited
or impaired capacity to take, digest, absorb or
metabolize ordinary foodstuffs or certain nutrients
contained therein, or who have other special
medically-determined nutrient requirements, whose
dietary management cannot be achieved only by
modification of the normal diet, by other foods for
special dietary uses, or by a combination of the two.
5.9 Lodging Establishment – refers to public and
private establishments that charge daily, weekly,
monthly rates or fees which include but not limited to
the following:
5.9.1 Apartel refers to building or edifice containing
several independent and furnished or semi-furnished
apartments, regularly leased to tourists and travelers
for dwelling on a more or less long-term basis and
offering basic services to its tenants, similar to hotels.
5.9.2 Dormitory refers to any permanent structure
with private rooms where persons, students in
particular, may be regularly accepted as boarders and
provided with lodging and/or meals.
5.9.3 Motorist Hotel refers to any structure with
several separate units, primarily located along the
highway, with individual or common parking space, at
which motorists may obtain lodging and in some
instances, meals.
5.9.4 Pension House refers to a private or family-
operated tourist boarding house, tourist guest house or
tourist lodging house, regularly catering to tourist,
and/or traveler, containing several independent table
rooms, providing common facilities such as toilets,
bathrooms/showers, living and dining rooms and/or
kitchen and where a combination of board and lodging
may be provided.
5.9.5 Tourist Inn refers to lodging establishment
catering to transients, which does not meet the
minimum requirement of an economy hotel.
The term lodging establishment shall include lodging
houses, which shall mean such establishments are
regularly engaged in the hotel business, but which,
nevertheless, are not registered, classified and licensed
as hotels by reason of inadequate essential facilities
and services. It also includes resort, which shall refer
to any place or places with pleasant environment and
atmosphere conducive to comfort, healthful relaxation
and rest, offering food, sleeping accommodation and
recreational facilities to the public for a fee or
remuneration.
The term, however, excludes homestay or an
alternative tourism where tourists will stay with the
host’s family in the same house and will experience the
everyday life of the family and the local community.
5.10 Medical Services – refers to health services
which include but not limited to prevention of disability
through immunization, nutrition, environmental
protection and preservation; genetic counseling; early
detection of disability and timely intervention to arrest
disabling condition and medical treatment and
rehabilitation including mobility assistive devices.
5.11 Prime Commodities – are goods not considered
as basic necessities but are essential to consumers
such as, but not limited to flour; dried, processed or
canned pork, beef and poultry meat; dairy products
not falling under basic necessities; onions; garlic;
vinegar; patis; soy sauce; toilet soap; fertilizer;
pesticides and herbicides; poultry, livestock and fishery
feeds and veterinary products; paper; school supplies;
nipa shingles; sawali; cement; clinker; GI sheets,
hollow blocks; plywood; plyboard; construction nails;
batteries; electrical supplies; lightbulbs; steel wire; all
drugs not classified as essential drugs by the
Department of Health and other commodities that may
be classified by the Department of Trade and Industry
and the Department of Agriculture.
5.12 Recreation Centers – refers to any
establishment offering recreation services with facilities
that include but not limited to internet cafes, video
games, other similar amusement facilities, theaters,
cinema houses, concert halls, circuses, carnivals and
other places of culture and leisure. This definition
excludes establishments with gambling facilities.
5.13 Restaurant – refers to any establishment duly
licensed by the government selling to the public,
regular and special meals or menu. This may include
but not limited to food, drinks, beverages, desserts
and other consumable items served by the
establishment including value meals and other similar
food counters, fast food, cooked food and short orders
including take-outs.
Section 6. Twenty Percent (20%) Discount and
Value Added Tax (VAT) Exemption – Persons with
disability shall be entitled to the grant of 20% discount
and VAT-exemption on the purchase of certain goods
and services from all establishments for their exclusive
use, enjoyment or availment; Provided, however, that
the purchase of such goods and services from sellers
that are not subject to Value Added Tax (VAT) shall be
subject to the applicable percentage tax.
For this purpose, subsequent purchases by persons
with disability on the same day from the same
establishments shall still be subjected to 20% discount
and VAT-exemption.
All establishments shall place signages in conspicuous
areas within their premises to inform persons with
disabilities that they are entitled to the 20% discount
and VAT-exemption.
The Department of Finance thru the Bureau of Internal
Revenue shall issue the corresponding Revenue
Regulations and/or Revenue Memorandum Circulars
related to the grant of the 20% discount and VAT-
exemption for persons with disability.
The Department of the Interior and Local Government
shall also ensure that all local government units are
informed about the law for the smooth implementation
of the 20% discount and VAT-exemption for persons
with disability in their areas of jurisdiction.
Section 6.1 Lodging Establishments – This shall
apply to room accommodation and other amenities
offered by the establishment such as but not limited to
massage parlor, sauna bath, food, drinks and other
services offered. The said discount and exemption will
only apply to persons with disability.
The Department of Tourism shall issue the
corresponding guidelines, circulars or directives related
to this section for its accredited lodging establishments
and disseminate such information to all concerned.
The concerned academic institutions shall also ensure
that dormitories under their jurisdiction grant the 20%
discount and VAT-exemption to students with
disabilities.
Section 6.2 Restaurants – This shall apply to the
purchase of food, drinks, beverages, dessert and other
consumable items served by the establishments
including value meals and other similar food counters,
fast food, cooked food and short orders including take
outs. To safeguard the establishments from abuse of
this privilege, the orders should be limited only to the
consumption of the concerned person with disability.
Section 6.3 Recreation Centers – This shall apply to
admission fees of persons with disability charged by
theaters, cinema houses, concert halls, circuses,
carnivals and other places of culture and leisure. The
said discount and exemption shall also apply to
charges in the utilization of services including rentals
of facilities and equipment and other accessories and
gadgets to be used, enjoyed or availed by persons with
disability in these centers.
The Department of Tourism shall issue the
corresponding guidelines, circulars or directives related
to Sections 6.2 and 6.3 for its accredited restaurants
and recreation centers and disseminate such
information to all concerned.
The Local Government Units concerned, in coordination
with the Leagues of Cities and Municipalities, shall also
ensure that restaurants and recreation centers under
their jurisdiction are compliant to the law by including
the grant of 20% discount and VAT-exemption to
persons with disability as part of the terms and
conditions in the issuance of business permits to the
aforementioned establishments.
Section 6.4 Purchase of Medicines and Foods for
Special Medical Purposes – This shall apply to the
purchase of prescribed generic and branded drugs /
medicines as well as foods for special medical purposes
in all drugstores for the exclusive use or availment of
persons with disability.
The Department of Health, in coordination with the
Philippine Health Insurance Corporation and Food and
Drug Administration, shall issue the corresponding
guidelines, circulars or directives related to this section
and disseminate such information to all concerned.
Section 6.5 Medical and Dental Services,
Diagnostic and Laboratory Fees and Professional
Fees of Attending Doctors – This shall apply to the
availment of medical and dental services including
diagnostic and laboratory fees by persons with
disability in government facilities or private hospitals
and medical facilities. The said discount and exemption
shall also apply to the professional fees of attending
doctors in such facilities.
The Department of Health, in coordination with the
Philippine Health Insurance Corporation, shall issue the
corresponding guidelines, circulars or directives related
to this section and disseminate such information to all
concerned.
Section 6.6 Domestic Air and Sea Travel – This
shall cover the actual fare for domestic air and sea
travel. For promotional fares, the Section on No Double
Discounts should apply.
Section 6.7 Land Transportation Travel – This shall
apply to actual fare for land transportation travel such
as, but not limited to, public utility buses or jeepneys,
taxis, Asian Utility Vehicles (AUVs), shuttle services,
public railways including Light Rail Transit, Metro Rail
Transit and Philippine National Railways and
Transportation Network Vehicle Services (TNVS) such
as Grab, Uber and the like.
The Department of Transportation including those
agencies attached and under its administrative
supervision and control shall issue the corresponding
guidelines, circulars or directives related to domestic
air, sea and land transportation travel and disseminate
such information to all concerned.
The Local Government Units concerned, in coordination
with the Leagues of Cities and Municipalities, shall also
ensure the passage of local ordinance to enjoin
transport groups to grant this benefit/privilege.
Further, land transport groups shall place signages
within public utility vehicles, shuttle services and public
railways to inform persons with disability that they are
entitled to the benefit/privilege.
Section 6.8 Funeral and Burial Services for the
Death of a Person with Disability – The beneficiary
or any person who shall shoulder the funeral and burial
expenses of the deceased person with disability, shall
claim the discount under this rule for the deceased
person with disability upon presentation of the death
certificate and person with disability identification card
(ID) or in its absence, the original or certified true
copy of the proof of registration from the issuing local
government unit. Such expenses shall cover the
purchase of casket, 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.
The Local Government Units concerned, in coordination
with the Leagues of Cities and Municipalities, shall
ensure that mortuaries under their jurisdiction are
compliant to the law by including the grant of 20%
discount and VAT-exemption to persons with disability
as part of the terms and conditions in the issuance of
business permits to the aforementioned
establishments.
PERCENTAGE TAX j) Winnings in horse races

Percentage tax is a business tax imposed on persons k) Sale, barter or exchange of shares of
or entities/transactions: stock listed and traded through the
local stock exchange or through initial
1) Who sell or lease goods, properties or public offering
services in the course of trade or business
and are exempt from value-added tax Coverage Basis Tax
(VAT) under Section 109 (w) of the Rate
National Internal Revenue Code, as
amended, whose gross annual sales and/or Persons exempt from VAT Gross Sales or 3%
receipts do not exceed Php 1,919,500 and under Sec. 116 Receipts
who are not VAT-registered; and
Domestic carriers and Gross Receipts 3%
2) Engaged in the following industries/ keepers of garages
transactions:
International
a) Cars for rent or hire driven by the
Carriers:
lessee, transportation contractors,
including persons who transport
passengers for hire, and other
International air/shipping Gross Receipts 3%
domestic carriers of passengers by carriers doing business in
land (except owners of animal-drawn the Philippines
two-wheeled vehicle) and keepers of
garages Franchise Grantees:

b) International air/shipping carriers

doing business in the Philippines on Electric , gas and water Gross Receipts 2%
utilities
their gross receipts derived from
transport of cargo from the Philippines
to another country Radio and television Gross Receipts 3%
broadcasting companies
c) Franchise grantees of – whose annual gross receipts
of the preceding year do not
i) radio and/or television exceed P 10,000,000 and did
broadcasting whose gross not opt to register asVAT
taxpayer
annual receipts for the
preceding year do not exceed
Php 10,000,000.00 and did not Banks and non-bank Interest,
financing intermediaries commissions and
opt to register as VAT
discounts from
taxpayers
lending activities as
well as income from
ii) gas and water utilities
leasing on the basis
d) Overseas dispatch, message or of remaining
maturities of
conversation transmitted from the
instruments:
Philippines, except those transmitted
by the Philippine government, any
• Short term 5%
embassy and consular offices of a
maturity (not over 2
foreign government, public years)
international organizations enjoying
exemptions pursuant to an
• Medium term 3%
international agreement and news maturity (over 2
messages to a bona fide correspondent years but not over 4
furnishing general news service years)

e) Banks and non-bank financial

• Long term
intermediaries performing quasi-
maturity
banking functions

f) Other non-bank financial ο Over 4 years but 1%

intermediaries (including pawnshops) not over 7 years

g) Person, company or corporation ο Over 7 years 0%

(except purely cooperative companies
or associations) doing life insurance On Dividends 0%
business
On royalties, rentals 5%
h) Fire, marine or miscellaneous agents of
of properties, real or
foreign insurance companies personal, profits
from exchange and
i) Proprietor, lessee or operator of
all other items
cockpits, cabarets, night or day clubs, treated as gross
boxing exhibitions, professional income under Sec.
basketball games, Jai-Alai and 32 of the Code
racetracks, including videoke bars,
karaoke bars, karaoke televisions, Finance Companies On interest, 5%
karaoke boxes and music lounges
 discounts and other dealer in securities
items of gross
income paid to A corporate issuer/stock Gross selling price or
finance companies broker, whether domestic of gross value of in
and other financial foreign, engaged in the sale, money of shares of
intermediaries not barter, exchange or other stocks sold,
performing quasi disposition through Initial bartered, exchanged
banking functions Public Offering or otherwise
(IPO)/secondary public disposed in
Interest, offering of shares of stock in accordance with the
commissions and closely held corporations proportion of stocks
discounts paid from sold, bartered or
their loan exchanged or after
transactions from listing in the stock
finance companies exchange
as well as income
from financial leasing • Up to 25 % 4%
shall be taxed based
on the remaining
maturities of • Over 25% but not 2%
instruments: over 33 1/3%

• Short term 5% • Over 33 1/3 % 1%

maturity (not over 2
years)

• Medium term 3%
(over 2 years but not
over 4 years) CASES

PHILIPPINE BASKETBALL ASSOCIATION

• Long Term
vs.
Maturity
COURT OF APPEALS, COURT OF TAX APPEALS,
AND COMMISSIONER OF INTERNAL REVENUE
ο Over 4 years but 1%
not over 7 years G.R. No. 119122 August 8, 2000

ο Over 7 years 0% Facts:

Life Insurance Companies Total premiums 5%

The petitioner received an assessment letter from the
(except purely cooperative collected Commissioner of Internal Revenue (respondent
companies or associations) Commissioner) for the payment of deficiency
amusement tax of P5,864,260.84. Petitioner contested
Agents of foreign insurance the assessment by filing a protest with respondent
companies: (except Commissioner who denied the same. Respondent CTA
reinsurance premium) dismissed petitioner's petition and CA affirmed such
dismissal
Total premium 10%
collected Petitioner argued the jurisdiction to collect amusement
taxes of PBA games is vested in the local governments
Total premium 5% to the exclusion of the national government under the
collected Local Tax Code.

Issue: W/N PBA games are subject to National

Proprietors, lessee or
Amusement Tax?
operator of the following:
Held: Yes, PBA games are subject to National
Cockpits Gross receipts 18% Amusement Tax and not under the LTC.

Cabarets, Night or Day Clubs Gross receipts 18% Under the LTC, Sec. 13 states that “The province shall
impose a tax on admission to be collected from the
proprietors, lessees, or operators of theaters,
Boxing exhibitions Gross receipts 10%
cinematographs, concert halls, circuses and other
places of amusement..” The authority to tax
Professional basketball Gross receipts 15%
games
professional basketball games is not therein included.

In relation, as the same is expressly embraced in PD

Jai-alai and race track Gross receipts
(operators shall withheld tax
on winnings)
Every stock broker who
effected a sale, barter,
exchange or other
disposition of shares of stock
listed and traded through the
Local Stock Exchange (LSE)
other than the sale by a
30% 1959 (NIRC), sec. 268 (now sec. 125), “amusement
tax shall be collected from the proprietor, lessee or
operator of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-
Gross selling price or ½ of 1%
Alai, race tracks and bowling alleys” professional
gross value in money
basketball games" is required to pay an amusement
of shares of stocks
sold, bartered, tax which payment is a national tax.
exchanged or
Question from sir: does the amusement tax collection
otherwise disposed
limited to gross ticket/admission sale only?
 No, the law qualifies the scope of gross
receipts/sale (sec.125 next to par “e”). Income derived
from sponsorship banners are subject to amusement
tax.